Understanding the CARES Act and Paycheck Protection Program (PPP) Loans

UPDATE (January 14, 2021): A new COVID-19 relief package, the Economic Aid Act, was signed into law on December 27, 2020, authorizing over $284 billion in PPP loans for new borrowers who have not previously obtained a PPP loan and for “Second Draw Loans” to existing borrowers who previously received a PPP loan. See below for important information about Second Draw Loans:

(1) Second Draw Loans are available for 2.5 times an organization’s monthly Payroll Expenses up to $2 million.

(2) Second Draw Loans have more stringent eligibility criteria than new loans:

• Borrowers must have 300 or fewer employees
• Borrowers must have experienced a 25% or greater decrease in gross receipts in any calendar quarter in 2020 (compared to the same quarter in 2019).
• Certain (c)(3) nonprofits that engage in extensive lobbying and advocacy work, including any nonprofit that describes themselves as a think tank, are prohibited from applying. Second Draw Loan funding cannot be used to pay for lobbying expenses.

(3) The new law allows for a streamlined forgiveness application for loans of $150k or less, and significant expansion of allowable non-payroll expenses to include items like Personal Protective Equipment, payroll software, and more. These changes are generally retroactive and apply to 2020 loans as well as new loans and Second Draw Loans. We are awaiting updated forgiveness applications, including the new streamlined application for those with loans under $150k and expect the SBA will release additional FAQs and guidance as well in the coming weeks.

(4) New loans and Second Draw Loans may be obtained through March 31, 2021 subject to the availability of funds. You do not need to have received forgiveness on your first PPP Loan in order to apply for a Second Draw Loan. The SBA has released the Second Draw Loan application form and a short overview, and has stated that lenders can begin accepting applications as early as Wednesday, January 13.

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Second Draw Loan FAQ

Read below for answers to frequently asked questions and visit Top-line Overview of Second Draw PPP for more information.

What are “Second Draw Loans”?
Second Draw Loans are available to existing borrowers who previously received a PPP loan for a total of 2.5 times the borrower’s monthly Payroll Expenses, up to $2 million.

Visit Top-line Overview of Second Draw PPP for more information.

The “Second Draw Loans” application form can be accessed here.

What are the eligibility criteria for Second Draw Loans?
Borrowers must have 300 or fewer employees and must have experienced a 25% or greater decrease in gross receipts in any calendar quarter in 2020 (compared to the same quarter in 2019). Certain (c)(3) nonprofits that engage in extensive lobbying and advocacy work, including any nonprofit that describes themselves as a think tank, are prohibited from applying. Second Draw Loan funding cannot be used to pay for lobbying expenses.

Can Second Draw Loans be forgiven?
Borrowers may obtain loan forgiveness for certain expenses up to the full principal amount of the loan. The new law passed in December 2020 allows for a streamlined forgiveness application for loans of $150K or less, and significant expansion of allowable non-payroll expenses to include items like Personal Protective Equipment, payroll software, and more. These changes are generally retroactive and apply to 2020 loans as well as new loans and Second Draw Loans. We are awaiting updated forgiveness applications, including the new streamlined application for those with loans under $150K and expect the SBA will release additional FAQs and guidance as well in the coming weeks.

What are the requirements for loan forgiveness for Second Draw Loans?
Second Draw PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the 8-to-24-week covered period following loan disbursement:

• Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan
• The loan proceeds are spent on payroll costs and other eligible expenses; and
• At least 60 percent of the proceeds are spent on payroll costs

What can Second Draw Loans be used for?
Second Draw Loans can be used for payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, some types of uninsured property damage costs incurred in 2020, and certain supplier costs and expenses for operations.

How long will these loans be available?
The loans will be available until March 31, 2021, but they will be distributed on a first come, first served basis.

What is the loan period?
Loans are intended to cover expenses incurred during the “covered period,” which is 8-to-24-weeks following loan disbursement. 

All Second Draw Loans have a maturity of five years.

How much can I borrow in Second Draw Loans?
Whereas for first draw loans the max loan amount was 2.5 times the average total payroll costs incurred in the year before the loan (or $10 million), the maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million.

How do I calculate my payroll costs?
Refer to the sample calculation document to calculate your payroll costs, which will help you estimate your total loan request.

What is the interest rate on the loans?
The interest rate on the loans is 1%.

Which banks can I approach for a loan?
The list of banks, credit unions and other lenders can be found here.

How long will it take to get the funds?
Under the CARES Act, the loan process will be streamlined, and SBA participating lenders will be authorized to expedite loan processing.

Does it cost anything for my organization to apply for a PPP loan?
No, borrower origination fees will be waived for these loans.

It is important to note that Schusterman Family Philanthropies is not providing any legal, tax, financial or business advice. The information included in here is for general reference only and should not be relied upon as being definitive, either generally or with respect to any particular situation. You should consult your own professional advisors with respect to any of the topics discussed here.