January 8, 2021

Through: Michael C. Flynn

On January 6, 2021, the Treasury released two new Provisional Final Rules (IFR) on the new Law on Economic Assistance to Small Businesses, Nonprofits and Hard-Affected Sites (Law) (Law) on creation of PPP loans on the second drawdown and on the various changes made by law to PPP. requirements in general. The main PPP components of the law are described in detail in Buchalter’s COVID alert of December 28, 2020 (Buchalter PPP Changes Alert), which can be found here.

While discussing the requirements of the Act in some detail, the two IFRs provided several key clarifications that were not fully stated or left ambiguous in the Act:

• The deadline for obtaining a PPP loan is extended until March 31, 2021.
• All new PPP borrowers can use 2019 or 2020 to calculate their maximum loan amount.
• The safe harbor of certifying the need for a $ 2 million loan remains in place.
• Borrowers who have returned or have not accepted the PPP loan funds can apply to receive these funds.
• A borrower receiving a second pulling loan must use all funds from the first PPP loan for authorized purposes before the second pulling loan is disbursed.
• A second draw loan guarantee application will not be completed by the SBA while the SBA reviews the original PPP loan.

These details are briefly discussed below.

The IFR regarding changes to PPP requirements in general (PPP Changes IFR) can be found here.

The IFR regarding the Second Draw Loan IFR requirements can be found here.

1. Clarification of some changes to PPP loan requirements in general – should be read with specific details of Buchalter’s December 28 PPP Change Alert

Extension of the deadline for obtaining a PPP loan: The PPP Change IFR stipulates that eligible borrowers can now obtain PPP loans until March 31, 2021.

Time limit for calculating the maximum loan amount: All new PPP borrowers can use 2019 or 2020 to calculate their maximum loan amount.

Certification of the need for a $ 2 million loan remains in place: Any PPP borrower, as well as its affiliates, having received PPP loans with an initial principal amount of $ 2 million or less will be deemed to have provided in good faith the required certification regarding the necessity of the loan application.

Previous borrowers requesting increased amounts: The following borrowers can reapply or request an increase in their initial PPP loan amount:

• If a borrower has paid off a full PPP loan, the borrower can re-apply for a PPP loan in an amount for which the borrower is eligible under current PPP rules.
• If a borrower has returned part of a PPP loan, the borrower can reapply for an amount equal to the difference between the amount withheld and the amount previously approved.
• If a borrower has not accepted the full amount of a PPP loan for which it has been approved, the borrower can request an increase in the PPP loan amount up to the previously approved amount.

2. Clarification of some second draw loan requirements – should be read with the specific details of Buchalter’s December 28 PPP Change Alert.

Use of all funds from the first loan for authorized purposes prior to disbursement of the second loan: The Second Draw Loan IFR states that the SBA may guarantee Second Draw Loans for borrowers who “have used or will use the full amount of the original PPP loan for authorized purposes on or before the scheduled disbursement date of the Second Draw PPP Loan. “.

In addition, the borrower must certify that:

The applicant has received a First Draw Paycheck Protection Program loan and, by the time the Second Draw Paycheck Protection Program loan is disbursed, the applicant will have used the full amount of the loan (including any First Draw Pay Check Protection Program loan increase only for eligible expenses.

The second draw loan application will not be completed by the SBA while the SBA reviews the original PPP loan:

The Second Draw Loan IFR states that:

If a borrower’s first-draw PPP loan is under review by the SBA and / or information in the possession of the SBA indicates that the borrower may not have been eligible for the PPP loan from first drawdown they have received or for the loan amount they have received, the lender will receive a notification from the SBA when the lender submits a second draw PPP loan guarantee request and will not receive a loan number. SBA loan as long as the unresolved borrower’s first draw PPP loan issue is not resolved. . . SBA will quickly resolve the unresolved borrower issue and notify the lender of the process of obtaining an SBA loan number for the second PPP loan, if applicable.