PPP Loans: Eligibility, Documentation and First and Second Draw Loan Application

U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced that the Paycheck Protection Program (PPP) has reopened for new borrowers and certain existing PPP borrowers.

Updated PPP guidance outlining program changes to enhance its effectiveness and accessibility was released on Jan. 6 in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. This round of the PPP continues to prioritize millions of Americans employed by small businesses by authorizing up to $284 billion toward job retention and certain other expenses through March 31, 2021, and by allowing certain existing PPP borrowers to apply for a second draw PPP loan.

Key PPP updates include:

• PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs.
• PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs and worker protection expenditures.
• The program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, destination marketing organizations, among other types of organizations.
• The PPP provides greater flexibility for seasonal employees.
• Certain existing PPP borrowers can request to modify their first draw PPP loan amount.
• Certain existing PPP borrowers are now eligible to apply for a second draw PPP loan.

A borrower is generally eligible for a second draw PPP loan if the borrower:

• Previously received a first draw PPP loan and will or has used the full amount only for authorized uses.
• Has no more than 300 employees and can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

This program will provide a summary of key provisions lawyers need to know regarding eligibility, applications, calculations and documentation for first and second draw PPP loans.