Paycheck Protection Program (PPP)
2nd Draw PPP Borrowers

Congress passed and President Trump signed amendments to the March 2020 CARES and other laws to create a new PPP Second Draw Program for previous PPP borrowers who have exhausted their loan funds and can demonstrate significantly reduced receipts. There are special rules for the hospitality industry. See the eligibility details below. Customers Bank is now taking PPP Second Draw Loan applications. You can apply by using the link.

Use

Payroll-related
Rent
Mortgage Interest
Utilites Expenses
Additional Expenses

Amount

2.5X

2.5x average monthly payroll, 3.5x average monthly payroll for food service & accommodations, capped at $2 million

Rate

1% APR

1% fixed Annual Percentage Rate

Terms

5yrs

5 year term total

Forgiveness

100%

eligible for 100% forgiveness with approval

The foregoing is presented as a matter of convenience, does not constitute legal, accounting, or tax advice, and does not purport to address all aspects of the March 2020 CARES Act or subsequent legislation. We strongly recommend that you consult your attorneys, CPAs, tax advisors, and financial consultants with any questions.

Eligibility

Previous PPP Loan borrowers who exhausted all of their first PPP loan funds; have fewer than 300 employees; and who can demonstrate a minimum 25% reduction in gross receipts in any financial quarter of 2020, compared to the same quarter in 2019; or a 25% reduction in gross receipts for the full year 2020 compared to 2019 may apply for a Second Draw Loan of up to 2.5 times average monthly payroll costs—up to $2 million dollars. Eligible second draw borrowers include business entities, sole proprietors, self-employed workers, contract workers and some nonprofit organizations. There are special rules – and more money – for Food service and accommodations businesses that fall under sector 72 of the North American Industry Classification System (NAICS). See the FAQs.

Allowable Expenses

In addition to payroll-related, rent, mortgage interest and utility expense; eligible expense have been expanded to include:

  • personal protective equipment and workplace construction/adaptations to health and safety guidelines;
  • software, cloud computing, human resources, and accounting needs;
  • property damage due to “public disturbances” during 2020 and which were not insured; and
  • required business supplies that would have been consumed and expensed had business operations continued as normal.

FAQs

If I received previous PPP funds, EIDL grants, unemployment benefits, or other government grants, are these funds to be included in my gross receipts when calculating my eligibility for a second PPP loan?
PPP funds and other state and federal government grants are not included in gross receipts.

How are the 2.5 months worth of payroll expenses calculated?
Applicants will calculate the loan amount by taking the total payroll costs for 2019 or 2020, divided by 12 to identify the average monthly payroll for the calendar year. This value for average monthly payroll is multiplied by 2.5 to calculate the loan amount. Industries assigned to NAICS code 72 (lodging and restaurants) may receive loans up to 3.5 months of average monthly payroll costs.

How should an applicant demonstrate they had a 25% reduction in gross receipts, in order to be eligible for a second draw loan?
It is not required to provide documentation evidencing the applicant experienced a 25% reduction in gross receipts. This is a certification made by the applicant. The SBA may request documentation supporting this certification during a PPP loan audit by the SBA.

How should independent contractors and sole proprietors calculate their loan amount? What documentation is required?
Independent contractors and sole proprietors may calculate their loan amount based on 2.5 months worth of income from 2019 or 2020, subject to a cap of an annualized salary of $100,000. The 2019 or 2020 Schedule C tax filing should be provided.

Do applicants have the choice of using either 2019 or 2020 payroll documentation to calculate their loan amount?
Yes, the loan amount may be based on either 2.5 months worth of payroll from 2019 or 2020.

Must borrowers have applied for forgiveness of their first PPP loan before applying for a second PPP loan?
You can receive a second draw loan after your first loan has been fully used, and you do not need to have the first loan forgiven before the second loan.

My business began operations in 2019. Our 2020 gross receipts are greater than 2019 due to being in operation in 2019 for only a few months, but still need a PPP loan to support our operations. Do we qualify for a second PPP loan?
SBA guidance states that a business is eligible for a second draw PPP loan if the business experienced at least a 25% decrease in gross receipts for any quarter in 2020 relative to the same quarter in 2019.

What is included in gross receipts?
Per SBA guidance on second draw loans, gross receipts includes all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products and services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.

Would an applicant qualify for a second PPP loan if employees were laid off or furloughed in 2020?
Eligibility for a second draw loan is not based on relative FTE counts. However, in order to achieve full forgiveness of a second draw loan, at least 60% of the loan amount must be spent on eligible payroll expenses.

Is a business eligible for a second draw PPP loan if the business began in early 2020, prior to February 15, and cannot perform the 2019 gross receipts comparison?
SBA guidance states that a business is eligible for a second draw PPP loan if the business experienced at least a 25% decrease in gross receipts for any quarter in 2020 relative to the same quarter in 2019. If a business does not have 2019 gross receipts to compare to, they are ineligible for a second draw loan.

Is owner draw also included in eligible payroll costs when calculating the loan amount?
Owner draw is included in payroll when calculating the loan amount.

Are owners included in the 300 employee limit for eligibility?
Owners are included in the employee count when evaluating eligibility for a PPP loan.

What time period do second draw PPP funds cover?
In order to achieve loan forgiveness, second draw funds must be spent on eligible payroll and non-payroll costs during the Covered Period. The Covered Period will begin for these loans the date the Second Draw loan is disbursed into the borrower’s account.

How do I calculate the 25% reduction in gross receipts?
The revenue reduction is calculated by taking 2020 gross receipts/2019 gross receipts. If the calculated value is 0.75 or less, the 25% reduction is met.

Is it correct that NAICS code 72 businesses are eligible for a loan amount of 3.5 months worth of payroll?
Yes, industries assigned to NAICS code 72 (lodging and restaurants) may receive loans up to 3.5 months of average monthly payroll costs for their second draw PPP loan.

Can the second draw loan amount be different than the first draw, or must the amounts be the same?
The amounts may be different if an applicant chooses to base the loan amount calculation on 2020 payroll costs versus 2019 payroll costs that were used to calculate the first loan amount.

What documents are required to apply for a second draw loan?

Applicants must provide the following when applying for a Second Draw PPP loan:

1. A payroll register as of 2/15/2020 or for sole proprietors and independent contractors, a February 2020 bank statement or invoice showing the business was in operation on February 15, 2020

2. Documentation verifying the number of full-time equivalent employees (FTE) on the applicant’s payroll

Documentation may be a combination of the following:

  • 2019 or 2020 calendar year third party payroll report listing all employees and the average number of hours worked per week
  • 2019 or 2020 941 tax filings
  • For seasonal employers, payroll may be determined by any consecutive 12-week period between February 15, 2019 and February 15, 2020

3. Documentation that supports the amount of payroll costs incurred for either 2019 or 2020.

Documentation may be a combination of the following:

  • 2019 or 2020 W3 or W2 for all employees
  • 2019 or 2020 calendar year third party payroll report listing all employees and total wages
  • all four quarters 2019 Payroll Tax Filings (941/940)
  • Income and expenses from a sole proprietorship
  • Bank records
  • 2019 or 2020 Form 1099-MISC, Schedule C or Schedule F (self-employed individuals only)

4. Financial statements or tax forms to support the 25% reduction in gross receipts for the periods referenced in the application.

Documentation may include a combination of the following:

    – 1120/1120S – Schedule C – 1065 – Schedule F

If a business only experienced a decrease in gross receipts during one quarter of 2020, are they still eligible for a second draw PPP loan?
Yes, the legislation signed by Congress states that to be eligible for a second draw or new PPP loan, the borrower must have experienced a decrease in gross receipts in either quarter 1, quarter 2, quarter 3 or quarter 4 of 2020 relative to the same quarter of 2019.

If payroll documentation was already provided for our first PPP loan, do we need to provide this same documentation to apply for a second PPP loan?
Yes. This loan is viewed as a separate loan so all supporting documentation must be provided with the second draw loan application.

At what point in time is the 300 employee count evaluated for eligibility?
Employee counts are evaluated at the time of loan application.

What is included in the 2.5 months worth of eligible payroll costs?
Payroll costs include employee compensation of variety of forms, employee benefits paid by the employer, owner compensation, retirement plan costs paid by the employer, and state or local payroll taxes.

Is the 25% gross receipt reduction based on calendar year or fiscal year calculations?
The 25% reduction is based on a calendar quarter calculation, not an annual calculation.

Are workers compensation costs included in the 2.5 months worth of payroll costs?
Workers compensation costs are included in eligible payroll costs if part of state payroll taxes.

Can I include costs to independent contractors in my payroll calculation?
Only payments made to W-2 employees are eligible payroll costs. 1099 payments are ineligible as these individuals are eligible to apply for their own PPP loan.

Our business services the restaurant industry, but we are not under the NAICS Code of 72. Are we eligible for a loan of 3.5 months worth of payroll?
SBA guidance states that only industries under the NAICS Code of 72 are eligible for a PPP second draw loan of 3.5 months worth of payroll costs.

If a business experienced a decrease in gross receipts of 20% but a decrease in net income of 50%, do they qualify for a second draw loan?
Per SBA guidance, the business must have experienced a 25% decrease in gross receipts in either quarter 1, quarter 2, quarter 3 or quarter 4 of 2020 relative to the same quarter of 2019.

Are donations to charities and non-profits included in gross receipts?
Donations received by charities and non-profits are included in gross receipts.

The new form asks how the funds will be used. Are these cost categories included in payroll costs since the loan is only based payroll?
The loan amount is solely based on payroll costs, but the loan funds may be used for the various cost categories listed.

What type of documentation is needed to demonstrate that all first draw PPP funds have been used of will have been used by the time the second draw loan is received?
There is no documentation required, however, the borrower must certify that the first loan has been used or will have been used for eligible expenses. The SBA may request support of this certification in the case of a PPP loan audit.

If a business’ first draw loan was not completely forgiven, does this affect eligibility for a second draw loan?
Second draw loan eligibility is not based on the forgiveness of the first loan. However, since the first loan was not fully forgiven, this means that loan funds may not have been fully used for eligible program purposes. The applicant will need to certify that the first draw loan funds have been fully utilized.

A business opened a second location in 2020, thus, gross receipts are higher than 2019. Does the business qualify for a second draw loan since the locations would meet the 25% requirement if evaluated separately?
The eligibility requirement is for the legal business entity as a whole, comparing one quarter in 2020 to the same quarter in 2019. You will need to review your results for each quarter to determine if any quarter has a 25% decline. If that is not the case because of the second location, unfortunately the guidance at this point would indicate the business is not eligible.

If a business sold assets to increase cash flow, can the capital gain be excluded from gross receipts when calculating the 25% revenue reduction?
Yes. The instructions on the form indicate capital gains are excluded from gross receipts.

Should amounts paid to employees for an annualized salary greater than $100,000 be excluded from the loan calculation?
Yes, only compensation up to an annualized salary of $100,000 should be included in the loan amount calculation. Benefits costs are not included in the $100,000 threshold.

If a business experienced a decrease in gross receipts in 2020 but recovered by the end of the year, is the business still eligible for a Second Draw loan?
Yes, the legislation signed by Congress states that to be eligible for a second draw or new PPP loan, the borrower must have experienced a decrease in gross receipts in one quarter, either quarter 1, quarter 2, quarter 3 or quarter 4 of 2020 relative to the same quarter of 2019.

Forgiveness

What is the deadline to apply for loan forgiveness?
The SBA has not set a specific application deadline. Borrowers may apply for forgiveness any time before the maturity date of the loan

Can I still apply for and receive forgiveness of my first PPP loan?
Yes. Borrowers can still apply for forgiveness for loans issued in 2020 even though the SBA is providing another round of funding.

Are payroll service provider costs eligible for forgiveness?
Yes. New guidance states that accounting and other human resources costs are included in covered operations expenditures.

If I receive a first and second draw, and together they are under $150,000, can I use one certification to apply for forgiveness?
First and second draw loans are considered separate loans, so forgiveness will be applied for separately. However, forgiveness can be applied for a the same point in time.

What specific costs are included in supplier costs eligible for forgiveness?
Supplier costs include expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.

What costs are included in group benefits costs eligible for forgiveness?
Group benefits costs include employer paid group benefits for health, life, disability, dental and vision insurance.

Are worker’s protection costs from March of 2020 eligible for forgiveness?
Costs included on your forgiveness application must have been paid or incurred during the loan’s Covered Period.

Do worker’s protection costs include costs associated with allowing employees to work remotely? (such as costs for VPN set-up, video conferencing subscriptions, etc.)
Our interpretation of the SBA’s guidance is that these costs would be considered PPE costs and are eligible for forgiveness.

If I received a PPP loan in 2020, am I eligible to include costs for the new cost categories eligible for forgiveness in my forgiveness request?
Yes. All new requirements that resulted from the new legislation are applied retroactively to all loans issued in 2020, as long as forgiveness has not already been received.

Are premiums paid for the owner’s health benefits eligible for forgiveness?
Benefits costs for owners are not eligible for forgiveness, unless indirectly part of a general employee benefit plan.

Are employee compensation caps of an annualized salary of $100,000 still applied to forgiveness amount calculations?
Yes. Only compensation up to an annualized salary of $100,000 should be included in the forgiveness calculation. Benefits costs are not included in the $100,000 threshold.

If we did not include owner compensation in our original loan calculation, can we request forgiveness for owner compensation, or is it limited to payroll used to calculate the loan amount?
Borrowers may use the PPP funds on any cost categories eligible for forgiveness. In order to achieve full forgiveness, at least 60% of the loan must be used on eligible payroll costs.

Is forgiveness still based on a minimum expenditure of 60% of the funds on payroll?
Yes. The 60% payroll requirement in order to achieve full forgiveness still applies to existing, new and second draw PPP loans.

What is the purpose of the revised PPP loan Form 3508S and when should borrowers use Form 3508S?
The revised PPP loan Form 3508S provides a streamlined forgiveness application for all PPP loans of $150,000 or less, not requiring calculations to be shown, and less supporting documentation. All borrowers with loans $150,000 or less should use this form only going forward

Are borrowers eligible to apply for forgiveness using the streamlined application for loan less than $150,000 even if their first and second draw loans together exceed $150,000?
Yes. First and second draw loans are considered separate loans, so forgiveness will be applied for separately.

Is the new simplified application different than the EZ form? Will the EZ form still be available for use? The new simplified application is only for borrowers who received loans less than $150,000. The EZ form will still be available for borrowers to apply for forgiveness, as long as the requirements to use the EZ form are met.

To receive forgiveness for supplier costs, does a written contract need to be provided showing the agreement with the supplier?
The SBA has not provided guidance on the specific documentation required to support these expenditures.

What is required to be in the 1-page certification to apply using the streamlined application for loans under $150,000?

A borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one-page in length including:

  • A description of the number of employees that the borrower was able to retain because of the covered loan
  • The estimated total amount of the loan spent on payroll costs
  • The total loan amount

The borrower must also attest that the borrower accurately provided the required certification and complied with program requirements.

Are borrowers required to submit supporting documentation with the Form 3508S streamlined application? Borrowers are not required to submit any supporting documentation with the application, however, must maintain documents that could be requested during an audit or SBA loan review. Borrowers should be advised to prepare this documentation and have it ready, enabling fast response upon SBA inquiry.

Is PPP forgiveness treated as taxable income?
Forgiveness of PPP loans are not to be included as taxable income on a borrower’s tax returns.

How do the new forgiveness requirements affect non-profit organizations?
The rules are the same for non-profit organizations as for for-profit organizations.

Will forgiveness be given to second draw recipients?
Borrowers may request forgiveness for both first and second draw PPP loans.

Even with additional cost categories eligible for forgiveness, the loan amount does not change. How is it beneficial to add in new eligible costs incurred?
New cost categories allow businesses to use the funds on other expenditures that resulted from the pandemic in case the borrower was unable to spend the entirety of the loan on payroll.

Will the new requirements affect applications that have already been submitted to the Bank for forgiveness?
Borrowers may adjust their applications to reflect the new program requirements as long as the application has not been submitted to the SBA and forgiveness has not been received.

A business already submitted their forgiveness application for a loan under $150,000, will the applicant be required to re-apply using the new streamlined application?
No. If an application was already submitted to the Bank, the applicant will not be required to resubmit a new application. However, if the application has not been submitted to the SBA and forgiveness has not been received, the borrower can resubmit their application to expedite the review process.

Can businesses include expenditures that fall under the new cost categories in their forgiveness request for a loan that was issued in 2020?
Yes. New program requirements apply to new, second draw and current PPP loans.

What is the purpose of the revised PPP loan Form 3508D?
Form 3508D should be completed for all PPP1 first draw loans received prior to 12/27/20 with applicable “covered individual” owners. Covered individuals are primary government officials who hold a “controlling interest,” or more than 20%, in the borrowing entity.

When do borrowers need to complete Form 3508D?
If a borrower already submitted a forgiveness application, the form needs to be completed and sent to the SBA no later than 1/26/20 via email. If forgiveness has not been processed, this form should be submitted along with forgiveness documentation within 30 days via the SBA platform.

Are loans under a certain amount threshold exempt from reductions to the loan forgiveness amount? Only loans of $50,000 or less are exempt from any reductions to the loan forgiveness amount. A borrower with a loan greater than $50,000 and up to $150,000 must comply with the requirements under PPP, including calculating any reduction in forgiveness amounts based on reductions in FTEs or employee salary or wages. It should be noted that reduction is waived if the borrower certifies to being impacted by government controls related to the pandemic.