On January 6th, the Treasury Department and Small Business Administration released two interim final rules related to the administration of the Paycheck Protection Program. The new program allows for PPP loans to both first time applicants (First Draw PPP Loans) as well as to businesses that have already received a PPP loan (Second Draw PPP Loans).

Interim Final Rule: Paycheck Protection Program as Amended by Economic Aid Act (1/6/2021)
Interim Final Rule: Second Draw Loans (1/6/2021)

Eligibilty Requirements 

First Draw

  • Employ no more than 500 employees
  • Have not received a PPP loan
  • Business was in operation on February 15, 2020
  • Currently operating

Second Draw

  • Employ no more than 300 employees
  • Previously receive a First Draw PPP Loan and will or has used the full amount only for authorized uses
  • Demonstrate at least a 25% reduction in gross receipts in 2020 versus 2019 for full year OR any chosen quarter in 2020 relative to the same quarter in 2019
  • Currently operating
    • Corporation, partnerships, and LLC(s)
    • Non-profit organization
    • Housing cooperative
    • Veteran’s organizations
    • Tribal Businesses
    • Self Employed
    • Sole Proprietors
    • Independent Contracts
    • Small agricultural cooperatives

Loan Terms

First Draw

  • Interest Rate: 1%Maturity: 5 years
  • Loan Maximum: $10M
  • Loan amount based on 2.5 times average monthly payroll
  • Eligible loan amounts
    • 2.5 times average monthly payroll during the year prior to the loan or the previous calendar year
    • 2.5 times net profit for 2019, if sole proprietor or 1099-Misc employee and file a Schedule C.

Second Draw

  • Interest Rate: 1%
  • Maturity: 5 years
  • Loan Maximum: $2M
  • Eligible loan amounts:
    • 2.5 times average monthly payroll during the year prior to the loan or the previous calendar year 
    • 3.5 times for Entities that fall under the NAICS code 72 (which includes Accommodation and Food Services Industries)
    • Seasonal employers calculate their maximum loan amount based on a 12-week period of their choosing between Feb. 15, 2019 and Feb. 15, 2020

Documentation Requirements 

First Draw

  • 2019 Personal Tax Return
  • 2019 Business Tax Return
  • Payroll verification, one of the following:
    • 2019 941 quarterly forms, in-house payroll reports, OR 944);
    • 2020 Annual (i.e. 941 quarterly forms, in-house payroll report, or 944);
    • Statement from Payroll Service Provider (PEO)
  • Optional (may increase loan amount)
    • Evidence of retirement contributions
    • Evidence of health insurance contributions / premiums

Second Draw

  • 2019 Personal Tax Return 
  • 2019 Business Tax Return 
  • *Payroll (see details below chart for documentation tips, per business type):
    • Annual/ Quarterly IRS Forms (one of the following, choose between 2019 OR 2020):
      • 2019: 941 IRS forms for all 4 QTR’s, 940 IRS Form, W-3 IRS Form, 944 IRS Form OR PEO Statement
      • 2020: 941 IRS forms for all 4 QTR’s, 940 IRS Form, W-3 IRS Form, 944 IRS Form OR PEO Statement
    • Payroll report(s) for 2020 OR 2019 (full year) that corresponds with the Annual / Quarterly / PEO Statement chosen above
  • Revenue Reduction (at least 25%): Annual or quarterly sales reports (bank statements, financial statement, tax documents or book of record) to compare revenue reduction in 2020 versus 2019 for full year OR any chosen quarter (all Revenue Reduction documents must be signed and dated on the first page and initialed on subsequent pages)

*Payroll documentation tips, per business type:

  • Business entity (EXCEPT self-employed, single member LLC, sole proprietor or independent contractor):
    • The SBA requires:
      • 941 IRS forms for all 4 QTR’s, 940 IRS Form, W-3 IRS Form OR PEO Statement AND state quarterly wage unemployment insurance tax reporting forms (RT-6, but ONLY if unemployment insurance was included in payroll calculation) from each QTR in 2019 OR 2020 (whichever was used to calculate payroll), as applicable, OR equivalent payroll processor records, along with any retirement and employee group health, life, disability, vision and dental insurance contribution (if applicable).
  • Self-employed and HAS employees:
    • The SBA requires:
      • 2019 IRS Form 1040 Schedule C
      • 941 IRS forms for all 4 QTR’s, 940 IRS Form, W-3 IRS Form OR PEO Statement AND state quarterly wage unemployment insurance tax reporting forms (RT-6, but ONLY if unemployment insurance was included in payroll calculation) from each QTR in 2019 OR 2020 (whichever was used to calculate payroll), as applicable, OR equivalent payroll processor records, along with any retirement and employee group health, life, disability, vision and dental insurance contribution (if applicable).
      • A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the applicant was in operation on February 15, 2020.
  • Self-employed and DOES NOT have employees:
    • The SBA requires:
      • 2019 IRS Form Schedule C
      • IRS Form 1099-MISC (if applicable) OR bank statement OR book of record (i.e. profit & loss, journal, or ledgers) to establish that the applicant is self-employed
      • A 2020 invoice, bank statement OR book of record (i.e. profit & loss, journal, or ledgers) to establish that the applicant was in operation on or around February 15, 2020 (all Revenue Reduction documents must be signed and dated on the first page and initialed on subsequent pages)

Loan Forgiveness

First Draw

  • Funds can be used for a covered period of 8 to 24 weeks
  • 60% of fund needs to be used for payroll The remaining portion can be used for:
    • Rent for business operations
    • Mortgage interest on business building
    • Utilities (electricity, gas, water, telephone, transportation, or internet access)

Second Draw

  • Funds can be used for a covered period of 8 to 24 weeks
  • 60% of fund needs to be used for payroll The remaining portion can be used for:
    • Rent for business operations
    • Mortgage interest on business building
    • Utilities (electricity, gas, water, telephone, transportation, or internet access)

Automate Loan Forgiveness with the DBLC

Lucro has incorporated the PPP loan forgiveness application into the Digital Business Lending Center to assist you with the collection of documents as well as integrating tools to help you calculate the forgiveness amount, collect signatures through DocuSign, PLUS much more! Other loan platforms expect your borrowers to begin the forgiveness application already knowing all of their calculations and whether or not their FTE reductions count toward Safe Harbor. That will certainly create a stressful situation for lenders and members alike.

PPP Forgiveness Comparison Chart

DBLC Lender Dashboard 

DBLC Borrower Dashboard 

Frequently Asked Questions

Payroll requirement

at least 60% of PPP must have been spent on payroll

Non-payroll expenses

no more than 40% includes:

  • mortgage interest
  • rent
  • utilities

Time period to use funds

8 or 24 weeks

  • Borrowers who had a disbursement date of 6/5 or after can only have a 24 week covered period. Those who received their loan disbursement prior to 6/5 can choose an 8 or 24 week covered period. 

Rehire requirements

Workers must be rehired by December 31, 2020
Exceptions:
    • Unable to rehire individual who was an employee on or before 2/15/2020
    • Able to demonstrate the inability to hire similarly qualified employees on or before 12/31/2020
    • Able to demonstrate the inability to return to the same level of business activity as before 2/15/2020

By choosing a 24-week covered period, a person who is an independent contractor or sole proprietor with no employees and files a Schedule C 1040 can have the entire loan forgiven as a payroll expense. By choosing an 8-week covered period, you can only have a maximum forgivable amount of $15,385.

Yes. The SBA has stated that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.

Any PPP loan money used to pay interest on a mortgage or on a property used for business purposes is eligible and qualifies for forgiveness.

Acceptable examples include interest on a loan to finance the real estate for your primary place of business; auto loan interest on a car you own to make business deliveries; or, mortgage interest on a warehouse you won to store inventory. The Mortgage or loan must have been in place prior to 2/15/2020.

PPP non-payroll uses can include rent or leases for real estate used by the business. The lease must have been in place prior to 2/2020. Note: If you moved your business after 2/2020 and obtained a new lease on the property or leased a new piece of equipment after 2/2020, you cannot use your PPP funds to pay that lease.

No, prepayment of principal is not allowed and is not eligible for forgiveness.

For loan eligibility, the CARES Act defines the term employee as “individuals employed on a full-time, part-time, or other basis.” Borrowers must, therefore, calculate the total number of employees, including part-time employees, when determining their employee headcount for purposes of the eligibility threshold. For example, if a borrower has 50 full-time employees and 50 part-time employees each working 10 hours per week, the borrower has a total of 100 employees.
By contrast, for purposes of loan forgiveness, PPP uses the standard of “full-time equivalent employees” to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions.

Borrowers that can EITHER rehire their workforce or hire and replace those workers AND maintain at least 75% of the same level of compensation, can be eligible for forgiveness.

No. Under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and the same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. 

Any loan principal not forgiven will carry an interest rate at 1% for the two-year standard maturity (which could be eligible for an extension to five years) for loans made prior to June 5, 2020, and for the five-year period for any loans made after June 5, 2020. Please keep in mind that no payments are due until after the Deferral Period which starts after a forgiven decision is rendered by the SBA.

Check with your accounting professionals, but accounting standards clearly say that you only derecognize debt when you are legally released from the obligation. Based on this guidance, generally accepted accounting principles (GAAP) do not allow recording this income until you have received documentation from that the loan is forgiven. At that point, you would debit the loan account for the amount forgiven and credit an income account for that same amount.

No. Unfortunately, if you received a PPP loan you are no longer eligible for employee retention tax credit. If you still want to maintain those credits, consult with your financial professionals, and consider repaying the PPP loan immediately. For more information, go here: https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-overview

This is a good question to check with your tax professional as it can be complicated. The IRS recently issued Notice 2020-32, which clarified that no deduction is allowed under the Internal Revenue Code (Code) for PPP loan expenses if the payment of those expenses results in forgiveness of the PPP loan, and that forgiven amount is excluded from gross income via section 1106(i) of the CARES Act. Section 1106(i) of the CARES Act excludes the PPP loan forgiveness amount from gross income, even though it would ordinarily be characterized as “cancellation of indebtedness income” (CODI).
Typically, sections 162 and 163(a) of the Code would allow for deductions for expenses paid related to (1) payroll costs, (2) any payment of interest on any covered mortgage obligation, (3) any payment on any covered rent obligation, and (4) any covered utility payment. Here, absent any further clarification, the IRS has stated they will rely on section 265(a)(1) and the applicable regulations to disallow any otherwise allowable deduction under the Code for the amount of any payment of an eligible PPP expense to the extent of the resulting covered loan forgiveness (up to the aggregate amount forgiven) because such payment is allocable to tax-exempt income. In other words, the IRS is trying to prevent a double tax benefit, i.e., receiving a deduction for spending loan proceeds that are eventually forgiven and excluded from gross income.

No. Check with your tax professionals but per the SBA, any expenses that a borrower claims for forgiveness under the PPP cannot then be deducted from the borrower’s business expenses. A forgivable PPP loan is already tax-free, so the IRS wants to prevent “double-dipping” (i.e, benefiting from both the IRS and SBA).

Interest for your PPP loan begins accruing the day your loan was funded to you.