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Treasury, SBA Issue PPP Guidance on First and Second Draw Loans


Jessica L. Jeane, J.D.
Director of Public Policy & Strategic Communications
January 7, 2021

Treasury and the U.S. Small Business Administration (SBA) released late in the evening of January 6 guidance on Paycheck Protection Program (PPP) First and Second Draw Loans.

The guidance, released as two interim final rules (IFR), which go straight to the Federal Register and are effective upon publishing, is listed as follows:

  • An 82-page IFR, Business Loan Program Temporary Changes; Paycheck Protection Program as Amended by Economic Aid Act, which for borrower and lender convenience consolidates the rules and guidance issued to date for PPP forgivable loans. Additionally, the IFR outlines changes made by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, enacted under the Consolidated Appropriations Act, 2021 (P.L. 116-260). The Economic Aid Act extended the authority to issue PPP loans through March 31, 2021, and revises some PPP requirements. 

Note: This IFR is intended to govern new PPP loans made under the Economic Aid Act, as well as applications for loan forgiveness on existing PPP loans where the loan forgiveness payment has not been issued. The guidance should not be interpreted to alter or affect the requirements applicable to PPP loans closed prior to Economic Aid Act’s enactment.

  • Next, a 42-page IFR, Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans, establishes guidelines for new PPP loans for businesses that previously received a PPP loan. Under section 311 of the Economic Aid Act, a second temporary program to SBA’s 7(a) Loan Program titled, “Paycheck Protection Program Second Draw Loans,” is established. This IFR applies to loan applications and applications for loan forgiveness submitted for PPP Second Draw Loans.

Note: Generally, Second Draw PPP Loans are guaranteed by the SBA under the same terms, conditions, and processes as First Draw PPP Loans. The SBA guarantees 100 percent of Second Draw PPP Loans and SBA may forgive up to the full principal loan amount. However, the eligibility requirements for Second Draw PPP Loans under the Economic Relief Act are narrower than PPP loans under the CARES Act.

Accordingly, a borrower is generally eligible for a Second Draw PPP Loan if:

  • a business has 300 or fewer employees and experienced a revenue reduction in 2020 relative to 2019;
  • the borrower has received a First Draw PPP Loan, and has used, or will use, the full amount of the First Draw PPP Loan by the expected date on which the Second Draw PPP Loan is disbursed; and
  • the borrower has experienced a revenue reduction of 25 percent or greater in 2020 relative to 2019. The borrower must calculate this revenue reduction by comparing the borrower’s quarterly gross receipts for one quarter in 2020 with the borrower’s gross receipts for the corresponding quarter of 2019. (Examples are provided within the IFR.)

Note: A borrower that did not experience a 25 percent annual decline in revenues, or that was not in operation in all four quarters of 2019, may still meet the revenue reduction requirement under one of the quarterly measurements provided within the IFR.

Additionally, the SBA released on January 6 PPP Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns .  Notably, once the PPP loan portal is reopened the week of January 11, only loan applications from community financial institutions will be accepted for at least the first two days.

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NSA presents this information in the interest of its members for information purposes only and is not intended to provide, nor should it be relied upon, as legal, tax, or accounting advice.

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