Congress recently passed, and the President signed, the “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act” (i.e. the Economic Aid Act) into law. The legislation includes roughly $900 billion in financial assistance to individuals, small business owners, hospitals, etc. who are struggling to make it through the Coronavirus Pandemic. A key component of the Economic Aid Act was infusing the moribund Paycheck Protection Program (PPP) with an additional $284 billion in funds. This means small business owners now have a second bite at the proverbial apple to secure a PPP loan which could, conceivably, be converted to a fully forgiven grant.
According to the new law, businesses are only eligible for a “second draw” PPP loan only if it meets the following prerequisites:
- The business is comprised of 300 employees or less; and
- The business experienced a quarterly or annual revenue reduction of at least 25 percent in 2020 when compared to the same period in 2019.
Additionally, you need to have received your first PPP loan and used the full amount of that loan on, or before, the disbursement of any secondary PPP loan.
Certain types of businesses in specific sectors of the economy are expressly prohibited from applying for a second PPP loan, including:
- Lobbying firms
- Super PACS and other politically focused businesses
- Publicly traded companies
- Any business entity owned at least 20 percent by a parent company organized under the laws of, or that has significant business operations in, China or Hong Kong.
Proof of Revenue Reduction
As noted above, if you already received a PPP loan and are planning to apply for a second draw PPP loan, you need to be prepared to provide evidence that your business encountered revenue reduction of 25 percent or greater in 2020, when compared to 2019. This revenue reduction may be calculated by comparing your quarterly gross receipts for any quarter in 2020 with your gross receipts for the corresponding quarter of 2019.
According to the statutory language in the Economic Aid Act, the deadline to apply for a new PPP loan is March 31, 2021.
Applying with the Same Lender
If you decide to apply for a PPP loan with a new lender, or this is your first attempt to secure a PPP loan, you should be prepared to provide payroll documentation to substantiate the amount of funds sought. Accepted documentation generally includes tax forms, payroll reports, etc. However, it is worth highlighting the fact that if you are applying for a second PPP loan from the same lender who already approved and funded your first PPP loan, there is not much paperwork to fill out. In fact, no additional documentation to substantiate payroll costs is necessary if you satisfy the following factors:
- Your business used calendar year 2019 figures to determine your first draw PPP loan amount;
- Your business used calendar year 2019 figures to determine your second draw PPP loan amount; and
- Your lender for the second PPP loan is the same as your first PPP loan lender.
Further if your business is seeking a second PPP loan that is $150,000 or less, you do not need to provide any additional documentation to satisfy the new 25 percent reduction standard that was included in the new law.
Have Questions About Your Eligibility for a New PPP Loan? Speak to an Experienced Business Lawyer in Los Angeles Today
If you have questions about your eligibility to secure a new PPP loan, take action by contacting the Hakim Law Group. We are comprised of highly skilled and reputable business lawyers in Los Angeles who are focused on delivering on our client’s goals and objectives. For further information or to schedule a consultation please contact HLG at 310.993.2203 or visit www.HakimLawGroup.com to learn more.