FR 2021-00452

The U.S. Small Business Administration (SBA) has released an important interim final rule designed to offer further financial relief to small businesses severely impacted by the COVID-19 pandemic. This measure, known as the Paycheck Protection Program (PPP) Second Draw Loans, is part of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. This program aims to assist small businesses that have already benefited from an initial PPP loan but continue to face financial difficulties.

Key Provisions and Eligibility Criteria

The PPP Second Draw Loans retain many characteristics of the initial loans but with specific adjustments. To qualify, businesses must have no more than 300 employees and demonstrate a minimum 25% decrease in revenue in 2020 compared to 2019. These criteria indicate that the program specifically targets smaller firms that have suffered significant financial setbacks.

Issues and Concerns

While the program's intention is clear, the complexity and technical nature of the document could pose challenges for the average small business owner. The use of legal and financial jargon, combined with numerous cross-references throughout the text, may be daunting. Small business owners, who might not have extensive financial knowledge, could find the document difficult to navigate.

Additionally, the guidance provides flexible options for calculating payroll using different time periods (2019, 2020, or the twelve months leading up to the loan). Although offering flexibility, this may create confusion, as borrowers need to ensure they select and apply the most beneficial and appropriate period for their situation.

A notable requirement is that businesses seeking loans over $150,000 must supply documentation to verify revenue reduction at the time of application. Meanwhile, those applying for lesser amounts can defer this until applying for loan forgiveness. Such inconsistencies might cause confusion and misalignment in application processing or verification efforts.

Public Impact

Broadly, the PPP Second Draw Loans could deliver much-needed support to countless small enterprises and nonprofits, potentially safeguarding a substantial number of jobs. By helping sustain these businesses, the program may contribute towards community stability and economic recovery.

Yet, the technical document requirements and complexity may limit access for certain business owners, particularly those who lack financial expertise or resources. This could inadvertently leave some deserving businesses without critical support.

Impact on Specific Stakeholders

The program is particularly beneficial for small businesses that suffered significant revenue drops, offering them a financial lifeline. However, businesses affiliated with larger corporate groups might find the $4,000,000 aggregate loan limit restrictive, potentially limiting their access to necessary funds.

For lenders, detailed verification and documentation procedures may introduce additional administrative burdens, potentially delaying loan processing times. This document may have also removed barriers for industries like food services, by allowing a higher multiplier for calculating loan amounts, acknowledging their unique financial challenges during the pandemic.

Conclusion

The Paycheck Protection Program Second Draw Loans present a robust framework intended to alleviate financial pressure on small businesses facing ongoing challenges due to COVID-19. However, the complex regulatory language, coupled with detailed requirements, underscores the need for clear communication and accessible resources to support the successful implementation of this well-intentioned program.

The document outlines the implementation of the Paycheck Protection Program Second Draw Loans, emphasizing financial allocations and processes.

Loan Amounts and Limits

A significant aspect of this program is the financial reference detailing how much businesses can borrow. The maximum amount a borrower can receive for a Second Draw PPP Loan is pegged at the lesser of two and a half months of average monthly payroll costs or $2 million. For businesses classified under NAICS code 72, primarily in the accommodation and food services sector, the maximum can be calculated using a multiplier of 3.5, allowing for potentially higher loan amounts.

In terms of overall limits, businesses that are part of a single corporate group are capped at an aggregate of $4,000,000 for Second Draw PPP Loans. This restriction may negatively impact larger corporate groups needing substantial financial support, as the limit might not consider their extensive financing needs.

Eligibility and Documentation

Eligibility for these loans is contingent upon demonstrating a 25% reduction in revenue from comparable quarters in 2019 and 2020. Borrowers must submit documentation supporting this revenue decline for loans over $150,000 at the time of application. For loans $150,000 or less, the documentation is required when applying for loan forgiveness or upon request. This difference in documentation submission could lead to inconsistencies across applications, impacting the verification process.

Revenue Inclusion and Exclusions

Another financial consideration involves calculating revenue reduction. Notably, any forgiveness amount of previous First Draw PPP Loans received in 2020 is excluded from gross receipts. This exclusion aligns with the provision that PPP loan forgiveness is not taxable as income, although borrowers must clearly understand its impact on their eligibility and calculations.

Fee Payments to Lenders

Lenders involved in processing these loans are compensated with specific fees. For loans up to $50,000, lenders earn fees of up to $2,500. For loans over $50,000, lenders receive 5% of the financing balance up to $350,000, and 3% for loans exceeding this amount. This fee structure incentivizes lenders to participate in the program but may contribute to delays if lenders need additional documentation for compliance and verification purposes.

Conclusion

These financial references and allocations interlace with the broader issues of program complexity and documentation requirements. The nuances in payroll calculations, revenue documentation, and lender responsibilities require careful navigation to ensure proper application and compliance, especially for small businesses facing operational challenges. The financial aspects of the program are designed to provide relief but must be communicated clearly to minimize confusion and ensure equitable access to financial resources.