PPP Second Draw FAQs
View additional Paycheck Protection Program Frequently Asked Questions (PDF)
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.
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.
