Dec. 2020 Changes to Paycheck Protection Program

Dec. 2020 Changes to Paycheck Protection Program

Paycheck Protection Program – December 2020 Changes

The Consolidated Appropriations Act changes the PPP Loan Program primarily in three ways.

  1. First, the Act allows new PPP loan applications to be submitted by eligible applicants that never obtained a PPP.
  2. Second, the Act permits some businesses that have already obtained a PPP loan to obtain a second PPP loan, called a “PPP second draw” or also called a PPP2.
  3. Third, the Act changes PPP rules—for existing PPP loans, new PPP loans, and PPP second draws—in the areas of eligibility, allowable expenses, forgiveness, and more.


  • The loan limit is $2 million, and the amount a small business will qualify for is determined by taking their average monthly payroll in 2019 and multiplying it by 2.5. In other words, the second round of PPP loans is meant to fund 2.5 months of payroll expenses. The bill has a special calculation for businesses NAICS code beginning with 72 (hospitality industry and others explained later in this article). It provides those businesses a larger loan amount of 3.5 months of average monthly payroll. For example, if you had an average monthly payroll in 2019 of $100,000, then your small business would qualify for $250,000. If you were a restaurant or other qualifying food business, then you would qualify for $350,000.
  • Must have 300 employees or less.
  • The bill also adds some new expenses to the list of “qualifying expenses.” These new qualifying expenses include operating expenses, workplace protection costs to protect employees from Covid-19 and covered property damage.
  • Loans of less than $150,000 will get the Simplified Forgiveness Application.
  • Check with your financial institution for their SBA approved loan application for the PPP Loan second draw, and if you qualify for the Employee Retention Credit (ERC) you should consider both programs together as each can impact the other.


Second Draw PPP Loans (PPP2)
  • You can’t apply for PPP2 unless you spent all of the original PPP1 funds on items that are forgivable by the time the PPP2 is dispersed. In other words you expect 100% forgiveness of PPP1.
  • The same terms, conditions and requirements as the First Draw PPP Loans – no collateral is required, no personal guarantees, interest rate of 1% and the maturity is five years.
  • A borrower must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019.  This is calculated 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.
    • For example, a borrower with gross receipts of $50,000 in the second quarter of 2019 and $30,000 in the second quarter of 2020 has a revenue reduction of 40% and is therefore eligible for a PPP2 Loan, assuming all other eligibility criteria are met.
  • Also, if the borrower has a reduction of gross receipts of 25% or greater comparing all of 2020 to all of 2019, the borrower may submit both the 2020 and 2019 tax returns as substantiation. This may be very helpful for small businesses that do not have quarterly financial records.
  • Restaurants including a single business that is assigned a NAICS code beginning with 72 (including hotels and restaurants) that employs less than 300 employees per physical location and otherwise satisfied the other eligibility criteria is allowed to submit for PPP2.  The aggregate loans of all the physical locations cannot exceed $4,000,000.
  • If a business is closed it does not qualify for PPP2.
  • Calculation of the maximum loan through the use of average monthly payroll costs is either calculated using the twelve-month period prior to when the loan is made or calendar year 2019.  Calendar year 2020 may also be used as a substitute for the twelve-month period before the loan is made – this does not apply to those who are self-employed (including sole proprietorships and independent contractors). Most businesses will use 2.5 times the average monthly payroll costs to determine the maximum loan available.
  • There is a special methodology available for seasonal businesses, new entities that did not exist for the full twelve-month period preceding the Second Draw PPP Loan, and borrowers assigned a NAICS code beginning with 72 to use 3.5 times the average monthly payroll costs.