On January 19, 2021, the U.S. Small Business Administration (SBA) and Treasury released guidance for how Paycheck Protection Program (PPP) borrowers should calculate revenue reduction and maximum loan amounts for second-draw PPP loans.
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By Andy Clark
The guidance for second-draw PPP loan calculations and the documents borrowers must provide to support each set of calculations is structured in the form of 24 questions and answers addressing a variety of situations. The questions and answers can be located within this 18-page document. Here is a snapshot of a few items the new guidance covers:
Eight of the 24 questions deal with how to determine if a PPP borrower experienced the 25% decline in gross receipts required to apply for a second-draw PPP loan. Guidance related to this also includes:
- Documentation needed to show a 25% reduction in gross receipts, including internal financial statements, bank statements, or tax returns
- How to demonstrate a gross receipts reduction if you are using your company’s annual income tax returns
The remaining 16 questions cover how a PPP borrower can calculate the maximum amount they can receive for a second-draw PPP loan. Guidance related to this also includes:
- How the following types of businesses should calculate their second-draw PPP loan maximums: self-employed (with or without employees), partnerships, S corporations, C corporations, nonprofit organizations, religious institutions, veterans organizations, tribal businesses, and LLC owners.
- Documents required to substantiate payroll costs used to determine your maximum second-draw PPP loan amount
- Calculation considerations for businesses not in operation a full year prior to February 15, 2020
The guidance addresses the relationship between calculating gross receipts and the accounting method the borrower uses. It states that in the case of a for-profit business, gross receipts are defined as generally all revenue in whatever form received or accrued, which is determined in accordance with the borrower’s accounting method (e.g., accrual or cash) used for federal income tax return purposes. Similarly, gross receipts for nonprofit organizations will be defined by section 6033 of the Internal Revenue Code.
It is important to keep in mind that more fraud protection has been put in place to determine eligible companies. Each applicant must certify that the current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant. The SBA is committed to random review of some loan applications and forgiveness requests.