Tips for Professionals Regarding Second-Draw PPP Funding

Business owners, CPAs, loan officers, and if applicable, business brokers, should all use a variety of tactics all at once as businesses pursue economic support in the form of the second draw of PPP funding. Per advice from the AICPA, the American Institute of Public Accountants, borrowers may need to act quickly and diligently to fill out their forms for the second round of PPP funding.

Some lenders are requiring PPP borrowers to apply for forgiveness on their first-draw PPP loan before they file to seek a second-draw PPP loan. However, according to the SBA and Treasury, this is not a requirement. Possible borrowers may want to consider other lenders that will process the second-draw loan application without the business having to file for forgiveness on their first PPP loan.

Compiling the relevant data that lenders seek is a critical step. Information such as average monthly payroll amounts and (for second-draw PPP borrowers) quarterly revenue comparisons are necessary. Supporting documentation for the average monthly payroll calculation used to calculate the maximum loan amount can be obtained from clients to support those amounts they come up with and will be helpful in the future, as it drove the amount of the PPP funds the borrower received.

Borrowers also need to be aware of updates on PPP forgiveness and differences between first-draw and second-draw loans. Possible borrowers should understand that second-draw applications require borrowers to prove they have experienced at least a 25% reduction in gross receipts as a result of the pandemic by comparing one quarter of 2020 to the same quarter in 2019. The new guidance makes certain covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures eligible for PPP forgiveness.

There is no denying that certain industries have been hit harder than others by the COVID pandemic and regulations. If a business is eligible under the 25% gross revenue test, there should be no issues obtaining the second draw of PPP funding. If you own a small business and have any questions regarding applying for the second round of PPP loans, forgiveness on the loan, or any questions regarding the treatment of PPP loans during a sale or transfer of your company please reach out to the professionals at The Center for Financial, Legal and Tax Planning, Inc.