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Second Draw PPP Loan: Your top questions answered

February 3, 2021 Article 10 min read
Jess Stephen Melissa Triplett

The Paycheck Protection Program was updated and expanded under the Consolidated Appropriations Act, passed in December 2020. Learn more about the Second Draw loan and see the top questions our experts have received so far.

Businessman wearing glasses using a laptop computer.On Dec. 27, 2020, Former President Trump signed the Consolidated Appropriations Act, which includes updated legislation covering the Paycheck Protection Program (PPP). Among the changes were additional eligible expenses, a Second Draw loan, and a reopening of the First Draw loan.

These changes generated many questions, and our experts gathered the most frequently asked questions here, along with our responses. Topics include the Second Draw loan covering eligibility, the gross receipts test, the loan forgiveness application, and the process of appealing decisions as they relate to forgiveness. These responses are based on the latest guidance, as of Jan. 28, 2021.

Second Draw loan eligibility & loan application

How is the 300-employee headcount determined when analyzing eligibility for Second Draw loans?

The 300-employee count is based on headcount and not FTE. A borrower needs to include all domestic and foreign affiliates unless an affiliation waiver applies when calculating headcount. Hospitality businesses with a NAICS Code 72, eligible news organizations with a NAICS Code beginning with 511110 or 5151, and certain faith-based organizations are eligible for the affiliation waiver if they employee 300 or fewer employees per physical location. No alternative size standard options are mentioned in the Second Draw loan guidance.

What does gross receipts include when determining if the 25% or more decline test is met?

The PPP interim final rule for Second Draw loans indicates the gross receipts definition will be consistent with the definition of receipts in 13 C.F.R. 121.104 of SBA’s size regulations. Gross receipts are defined to include all revenue in whatever form received or accrued, in accordance with the entity’s accounting method, from whatever source. This includes sales of products or services, interest, dividends, rents, royalties, fees, or commission, reduced by returns and allowances. Gross receipts don’t include taxes collected for and remitted to a taxing authority that are included in gross or total income, proceeds from transactions between a business concern and its domestic or foreign affiliates, and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder, or customs broker.

When using an annual tax return to support the gross receipts decline:

  • Partnerships use Form 1065, sum of lines 2 and 8, minus line 6.
  • S corporations use Form 1120-S, sum of lines 2 and 6, minus line 4.
  • C corporations use Form 1120, sum of lines 2 and 11, minus the sum of lines 8 and 9.

For a nonprofit, gross receipts are defined in Section 6033 of the Internal Revenue Code of 1986. This includes gross amounts received from all sources without reduction for any costs or expenses. “Gross receipts” includes gross amounts received as contributions, gifts, grants, dues or assessments, gross sales or receipts from business activities, sale of assets, or items received as investment income. For a nonprofit using its annual tax return to support a reduction in gross receipts, use Form 990 and sum lines 6b(i), 6b(ii), 7b(i), 7b(ii), 8b, 9b, 10b, and 12 (column (A)) of Part VIII.

Are affiliates’ gross receipts included when determining if the 25% or more decline test is met?

Similar to First Draw loans, a borrower is considered together with its affiliates to determine eligibility for Second Draw PPP Loans, unless a waiver under Paragraph 7(a)(36)(D)(iv) of the Small Business Act applies. The stated paragraph of the Small Business Act notes that the affiliate rules are waived for certain business concerns including those assigned a NAICS Code beginning with 72.

Unless a wavier applies, gross receipts of a borrower with affiliates is calculated by adding the gross receipts of the business concern with the gross receipts of each affiliate in order to determine eligibility. If a borrower has acquired an affiliate or been acquired as an affiliate during 2020, gross receipts includes the receipts of the acquired or acquiring concern. This aggregation would apply for the entire period of measurement, not just after the affiliate arose. The gross receipts of a former affiliate aren’t included for the entire period of measurement.

However, if a business concern acquired a segregable division of another business during 2020, gross receipts don’t include the receipts of the acquired division prior to the acquisition. If a borrower sold a division during 2020, the gross receipts of the division will be included.

Are CARES Act or other relief funds included in gross receipts?

There have been various rounds of additional funds including Higher Education Emergency Relief Funds (HEERF) or Provider Relief Funds. Unfortunately, there is no clear guidance currently as to if these funds are excluded from gross receipts when determining if you meet the 25% or more decline. PPP and EIDL forgiven funds are excluded from gross receipts.

If a company received a First Draw loan for PPP but didn’t receive full forgiveness, are they still eligible to receive a Second Draw PPP Loan?

The PPP interim final rule for Second Draw loans mentions that you’re only eligible if you received a First Draw PPP Loan and, before the Second Draw PPP Loan is disbursed, you will have used the full amount of the First Draw loan funds on eligible expenses. This doesn’t require full forgiveness of the First Draw loan. The round one funds simply need to be spent entirely on eligible expenses prior to receiving the Second Draw funds. Additionally, the assumption is that at least 60% of the First Draw funds are used on payroll, but this isn’t stated in the IFR.

On the loan application for Second Draw PPP Loans, the application is asking for a certification of loan necessity due to economic uncertainty. Is this in addition to the reduction of income annually or for a quarter in 2020?

Yes, the certification relating to economic uncertainty is related to economic concern at the time of the application. One of the documents a potential borrower may want to use to assist with thinking through and in the documentation of this certification is the Questionnaire for Loan Necessity that was used in the first round of lending for loans over $2 million dollars. This is available on the SBA website.

What is the difference between the affiliate rules and the corporate group rules?

The affiliate rules are used to determine if you meet eligibility requirements, such as employee count and gross receipts test. Once eligible, if the entity is considered part of a single corporate group, each entity within the group can obtain up to $2,000,000 in a Second Draw loan, but the total corporate group loan cannot exceed $4,000,000. A single corporate group is defined in subsection (B)(4)(f) of the Consolidated First Draw PPP interim final rule. Business are part of a single corporate group if they’re majority-owned, directly or indirectly, by a common parent. Business are subject to this limitation even if they meet an affiliate waiver.

Forgiveness of Second Draw loan

What is the safe harbor date to avoid any impact to loan forgiveness for a salary and wage decline or FTE reduction on a Second Draw loan?

For any loan (First or Second Draw) made after Dec. 27, 2020, a borrower has until the last day of the loan’s covered period to restore any salary and wage and FTE decline in order to avoid a reduction in its loan forgiveness amount.

What additional costs can be used to support forgiveness on First and Second Draw loans?

The Consolidated Appropriations Act includes the following additional eligible expenses as an allowable use of PPP funds:

  • Additional payroll costs: Any payments for group life, disability, dental, or vision insurance premiums paid by the employer (no portion of the employee responsibility)

Nonpayroll cost changes include:

  • Covered operations expenditures: A payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.
  • Covered property damage costs: A cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that wasn’t covered by insurance or other compensation.
  • Covered supplier costs: An expenditure made by an entity to a supplier of goods for the supply of goods that are essential to the operations of the entity at the time the expenditure is made, is made pursuant to a contract or purchase order in effect at any time before the covered period or with respect to perishable goods, in effect before or at any time during the covered period.
  • Covered worker protection expenditures: An operating or capital expenditure to facilitate the adaption of the business activities of an entity to comply with requirements established or guidance issued by the DHHS, CDC, or OSHA or equivalent guidance issued by state or local government related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement.

What is the covered period for Second Draw loans?

The covered period may be any period from 8 to 24 weeks and begins upon loan disbursement. Alternative covered periods are no longer part of the PPP.

What is the timeline and process for submitting the loan forgiveness application and what remedies are available throughout the process if there are disagreements with the lender’s or SBA’s decision on forgiveness?

The borrower has the entire life of the loan to apply for forgiveness. The borrower may defer payments on the loan if the borrower applies for forgiveness within 10 months of the covered period. The borrower must apply for forgiveness for the First Draw loan before or at the time of the forgiveness application for any Second Draw loan greater than $150,000, even if the First Draw loan forgiveness is $0.

If the borrower disagrees with the lender’s decision on forgiveness, they can request an SBA review of the loan or seek other legal remedies under the law.

If the amount of forgiveness granted by the SBA is different than the amount the lender determined forgivable, the borrower can appeal to the Office of Hearings and Appeals (OHA). Deadline for filing appeal petition is within 30 calendar days after the borrower’s receipt of the final SBA loan review decision or notification by the lender of the final SBA loan review decision, whichever is earlier. Borrowers may not file an appeal before the final determination by the SBA.

If a borrower is filing an appeal, there is a specific set of information required. Generally speaking, this includes:

  1. Borrower showing proof that the appeal was filed timely and the appeal is under OHA jurisdiction
  2. Copy of the loan review decision (forgiveness determination)
  3. A statement of why the decision is erroneous
  4. Relief being sought
  5. Signed copies of payroll tax filings reported to IRS and related state(s) filings
  6. Signed copies of income tax forms
  7. Name, address, and telephone number of borrower or their attorney

Post-forgiveness application

How does the audit process work for First Draw PPP and if borrowers obtain a Second Draw loan, are the loans combined for the audit?

The SBA may audit loans of any size anytime within the time frames discussed below. The SBA may audit the borrowers First Draw PPP Loan and Second Draw PPP Loan separately or at the same time. For individual loans of $150,000 or more, the borrower must maintain documentation for six years after the loan is forgiven or repaid in full. For loans under $150,000, the borrow must retain employment records for four years from the application date and all other records for three years following submission. The borrower is required to retain this information in duplicate of the information provided to the lender. (The lender will not be required to assist borrower in document retention. Lenders shall follow separate guidance for document retention.)


Thank you for reviewing our frequently asked questions. Information contained within this document includes direct excerpts from Small Business Administration (SBA) guidance available here.

In addition to this article we have additional discussions on the employee retention credit and previous articles on the PPP loans. If you have additional questions, please reach out to your Plante Moran advisor. 

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