SBA and Treasury Release Guidance for Second-Draw PPP Loan Borrowers

The Small Business Administration (SBA) and the U.S. Department of the Treasury (Treasury) released guidance on Jan. 19, 2021, to help businesses in determining revenue reduction and payroll costs as it relates to their potential eligibility and loan amount for a second-draw Paycheck Protection Program (PPP) loan. The guidance for second-draw PPP loans comes two days after the SBA and Treasury also released updated guidance for first-draw PPP loans (see DHG’s article Updated FAQs and Procedural Notices Released for First-Draw PPP Loan Borrowers). The guidance for second-draw PPP loan borrowers includes frequently asked questions (FAQs) divided into two sections: revenue reduction and maximum second-draw PPP loan amounts.

Revenue Reduction

The FAQs address several important items regarding the determination of revenue reduction for the purpose of determining eligibility for a second-draw PPP loan, including the following:

  • The guidance clarifies the definition of gross receipts, as well as examples based on entity.
    • For-profit businesses – Gross receipts generally include revenue from sources such as sales, interest, dividends, rents, royalties, fees or commissions. They do not include taxes, proceeds from a transaction between a concern and its domestic or foreign affiliates, or amounts collected by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. Subcontractor costs, reimbursements for purchases made by a contractor at request of a customer, investment income and employee-based costs may not be excluded from gross receipts.
    • Nonprofit 501(c)(3) organization, 501(c)(19) veterans’ organization, eligible nonprofit news organization, eligible 501(c)(6) organization, eligible destination marketing organization – Gross receipts are those as defined by Section 6033 of the Internal Revenue Code (IRC) of 1986, meaning gross amounts received during the organization’s annual accounting period from all sources without reduction for costs or expenses. The guidance states that contributions, gifts, grants and similar amounts are included in the definition of gross receipts.
    • When determining gross receipts, borrowers should consider other funds received because of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and ensure those funds are properly considered for inclusion or exclusion from gross receipts. The guidance explicitly notes that forgiveness on a first-draw PPP loan or Economic Injury Disaster Loan (EIDL) is excluded from the calculation of gross receipts.
  • The guidance provides reference periods to help applicants determine the periods needed to demonstrate the 25 percent gross receipt reduction to qualify for a second-draw PPP loan. In general, a borrower can demonstrate the 25 percent reduction using the entire year of 2020 as compared to the year 2019 or any calendar quarter during 2020 as compared to the corresponding calendar quarter in 2019 that shows a 25 percent reduction in gross receipts. Different reference periods will be applied depending on how long the applicant has been in business.
  • Applicants are required to provide supporting documentation to corroborate the 25 percent gross receipt reduction. Acceptable documentation includes quarterly financial statements, quarterly or monthly bank statements with deposit history or their annual Internal Revenue Service (IRS) income tax filing. Only one set of supporting documentation is required.
  • If an entity uses its annual income tax return to support the 25 percent gross receipts reduction, the guidance provides detailed tax return line items that should be included in the calculation. Specific tax return guidance is provided for self-employed individuals, self-employed farmers and ranchers, partnerships, S-corporations, C-corporations, nonprofit organizations and LLCs.
  • For second-draw PPP loan amounts greater than $150,000, applicants should provide the primary sets of documentation with the second-draw application form (SBA Form 2483-SD or lender’s equivalent form). For second-draw PPP loan amounts of $150,000 or less, applicants should provide primary sets of documentation before or at the time the applicant would seek loan forgiveness.
  • The guidance states that entities using a fiscal year to file taxes are allowed to document revenue reduction using income tax returns only if the fiscal year start date is the first day of February, March or April.
Maximum Second-Draw PPP Loan Amounts

In the second section, the FAQs provide the following considerations regarding second-draw PPP maximum loan amounts:

  • The first several FAQs address methodology for calculating maximum loan amounts for the following borrower types:
    • Borrowers who are self-employed and have no employees.
    • Self-employed farmers or ranchers who report income on Form 1040 Schedule F, specifically what documentation to provide in place of Schedule C.
    • Partnerships, including if partners' self-employed income should be included on the business entity level PPP loan application or on a separate PPP loan application for each partner.
    • S-corporations and C-corporations.
    • Nonprofit organizations, including eligible religious institutions, veterans’ organizations and tribal businesses.
    • Owners of an LLC.
    • Businesses who were in operation on Feb. 15, 2020, but not in operations between Feb. 15, 2019, and June 30, 2019.
  • If a borrower used the precise 12-month period prior to the first draw PPP loan to calculate payroll costs, the borrower cannot use the same 12-month period for the calculation of the second draw PPP loan. The borrower must use either the calendar year 2019 or 2020 payroll costs to determine the second-draw loan amount.
  • The guidance states that in addition to pre-tax employee contributions for health insurance, or other pre-tax contributions for fringe benefits excluded from IRS Form 941, the employee gross pay amount may also include contributions and deductions from pay for flexible spending arrangements, cafeteria plans under Section 125, qualified transit or parking benefits and group life insurance.
  • Businesses that are part of the same corporate group cannot receive second-draw PPP loans totaling more than $4 million; businesses are considered part of a single corporate group if they are directly or indirectly majority owned by a common parent organization.

For more information on the guidance or for questions on how to calculate a second-draw loan amount in 2021, reach out to us at


Denny Ard
Managing Partner, DHG Solutions Lab


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