SBA & Treasury Release Guidance for the Next Wave of PPP Loans

January 15, 2021


PPP 2nd round

The phased reopening of the Paycheck Protection Program (PPP) began on January 11th with limited access. For the initial phase of the program’s reopening, the SBA has only accepted loan applications from participating community financial institutions (CFIs). On Friday morning, January 15th, the SBA will begin accepting applications from lenders with $1 billion or less in assets. The SBA will open the program to all lenders and applicants on January 19, 2021. Borrowers can apply for PPP loans until March 31, 2021. The SBA & Treasury have issued an interim final rule (IFR), which consolidates recent changes made to the program.

“The Paycheck Protection Program has successfully provided 5.2 million loans worth $525 billion to America’s small businesses, supporting more than 51 million jobs,” said Treasury Secretary Steven T. Mnuchin in the SBA’s January 8th press release. “This updated guidance enhances the PPP’s targeted relief to small businesses most impacted by COVID-19. We are committed to implementing this round of PPP quickly to continue supporting American small businesses and their workers.”

First Draw PPP Loans

CFI’s were able to submit first draw PPP loan applications for first-time participants to the SBA on January 11th. As stated above, the SBA expanded applicant eligibility on January 15th and will open the program to all applicants on January 19, 2021.

In an effort to address the potential barriers minority and disadvantaged firms face in accessing capital, the SBA is prioritizing assistance for minority, underserved, veteran, and women-owned businesses. The SBA has set aside $15 billion for eligible first-time borrowers with 10 or fewer employees or for eligible borrowers in low or moderate-income neighborhoods for loans of $250,000 or less.

Eligible first draw borrowers will include the following:

  • businesses with 500 or fewer employees
  • sole proprietors, independent contractors, and self-employed persons
  • 501(c)(3) non-profit organizations, 501(c)(19) veterans organizations, or tribal business concerns with the greater of 500 employees, or if more than 500, that meets the SBA industry size standard
  • Accommodations and Food Services Businesses falling under NAICS codes beginning with 72 with more than one physical location employing less than 500 employees per location

Full details on the first draw may be found on the SBA’s dedicated webpage.

Second Draw PPP Loans

The SBA & Treasury also issued an IFR on second draw PPP loans. CFI’s began submitting second draw PPP loan applications on January 13th, and the program is expected to open to larger lenders on January 19, 2021. As with the first draw, the SBA continues to prioritize minority, underserved, veteran, and women-owned businesses. For second draw PPP loans, the SBA is setting aside at least $25 billion for eligible borrowers with 10 or fewer employees or for eligible borrowers in low or moderate-income neighborhoods for loans of $250,000 or less.

Second draw loans are possible for employers with fewer than 300 employees that can show a 25% loss in revenue in any 2020 calendar quarter in comparison to the corresponding 2019 calendar quarter. For loans of $150,000 or more, the loss must be demonstrated to the lender through annual tax forms or bank statements, which are also submitted with the loan application. For loans of less than $150,000, these documents will only be required when submitting the forgiveness application.

According to the IFR, “A borrower must calculate this revenue reduction by comparing the borrower’s quarterly gross receipts for one quarter in 2020 with the borrower’s gross receipts for the corresponding quarter of 2019.” The manner in which you determine your gross receipts will be based on your annual accounting method. According to the Electronic Code of Federal Regulations (eFCR), gross receipts include “all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.” Any initial PPP loans that were forgiven in 2020 are not included in gross receipts.

In general, the maximum loan amount will be based on the lesser of $2 million OR 2.5X the average total monthly payroll during the year prior to your loan date (or calendar year 2019). The maximum for seasonal employers may be calculated based on 2.5X their average total monthly payroll during the 12-week period assessed between February 15, 2019, and February 15, 2020. For new entities, the maximum may be calculated based on 2.5X the sum of their average monthly payroll costs since they have existed, and, for those in the accommodations and food service industry, the maximum may be based on 3.5X their average monthly payroll costs. No loan, however, may exceed $2 million.

Full details on the second draw may be found on the SBA’s dedicated webpage.

PPP Terms for First & Second Draw Borrowers

Regardless of first or second draw status, business owners must make good faith certifications pertaining to their loan need. PPP loans do not require collateral or personal guarantees, and businesses will not be charged loan fees by their lenders or the government.

According to the SBA, PPP funds may be used for payroll costs, including benefits, and “to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.”

To receive full loan forgiveness through the next wave of the PPP, the 60/40 payroll to non-payroll ratio applies. Your loan proceeds must be spent on payroll costs and eligible expenses, and your employee and compensation levels must be maintained during the covered period.

Contact Commonwealth

At Commonwealth Payroll & HR, we understand that employers have a lot to take in right now. We can help you answer questions relating to legislative changes. We also offer a PPP Forgiveness Coach Program to assist with certain aspects of the PPP Loan Forgiveness Application and process. To learn more, to get answers to your questions, or to discuss how we can help with your PPP loan forgiveness strategy, contact us today.

For additional information on the PPP, check out some of our recent articles:


*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. This article contains links to other third-party websites provided only for the convenience of the reader.


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