2nd Draw PPP Loan

Congress passed and President Trump signed amendments to the March 2020 CARES and other laws to create a new PPP Second Draw Program for previous PPP borrowers who have exhausted their loan funds and can demonstrate significantly reduced receipts. There are special rules for the hospitality industry. See the eligibility details below. AFNB is now taking PPP Second Draw Loan applications.

USE	AMOUNT	RATE	TERMS	FORGIVENESS
	2.5X	1%	5yrs	100%
Payroll-related Rent Mortgage Interest Utilites Expenses Additional Expenses	2.5x average monthly payroll, 3.5x average monthly payroll for food service & accommodations, capped at $2 million	1% fixed Annual Percentage Rate	5 year term total	eligible for 100% forgiveness with approval

AFNB is only processing applications in amounts of $350,000 or less. If you qualify for more, you will need to process your application through another participating PPP Lender.  

Eligibility

A 2nd Draw borrower can be a business concern, independent contractor, eligible self-employed individual, sole proprietor, nonprofit organization eligible for a 1st Draw PPP Loan, veterans organization, tribal business concern, housing cooperative, small agricultural cooperative, eligible 501(c)(6) organization or destination marketing organization, or an eligible nonprofit news organization. 

2nd Draw borrowers must have used or have plans to use the 1st Draw loan’s full amount on or before the date of disbursement of the 2nd Draw loan.

• “Full amount” includes any loan increase as described above.
• The full amount must have been spent on authorized PPP uses.

Eligibility requirements are narrower; in addition to meeting the 1st Draw requirements, 2nd Draw borrowers must:

• Have no more than 300 employees (or, for NAICS code 72 businesses (Accommodation and Food Services) or eligible news organizations with more than one location, 300 or fewer per location)
• Demonstrate at least a 25% reduction in gross receipts (further defined below) in 2020, calculated by comparing quarterly gross receipts for one quarter in 2020 with those for the corresponding 2019 quarter
  • Alternatively, so that borrowers can substantiate this revenue reduction with their annual tax return forms, a borrower that was in operation in all four quarters of 2019 can also be deemed to have experienced this reduction if 1) it experienced a reduction in annual receipts of 25% or greater in 2020 compared to 2019 and 2) it submits copies of those annual tax forms.
  • Specific guidance is provided for applicants that were not in operation all four 2019 quarters, based on when they were in operation – refer to page 21 of the IFR for information. 
  • Applicants that were not in operation in 2019 but were on Feb.  15, 2020, can demonstrate this reduction between 1) Q1 of 2020 and 2) Q2, Q3, or Q4 of 2020.

Certain entities are also specifically excluded from 2nd Draw loans:

• Entities that have permanently closed; those temporarily closed or suspended remain eligible
• “A business concern or entity primarily engaged in political activities or lobbying activities … including any entity that is organized for research or for engaging in advocacy in areas such as public policy or political strategy or otherwise describes itself as a think tank in any public documents;
• “Certain entities organized under the laws of the People’s Republic of China or the Special Administrative Region of Hong Kong, or with other specified ties to the People’s Republic of China or the Special Administrative Region of Hong Kong;
• “Any person required to submit a registration statement under Section 2 of the Foreign Agents Registration Act of 1938 (22 U.S.C. 612);
• “A person or entity that receives a grant for shuttered venue operators under Section 324 of the Economic Aid Act;”
• Entities in which the president, the vice president, the head of an executive department, or a member of congress, or the spouse of such a person, directly or indirectly owns, controls, or holds a controlling interest in the entity (at least 20% of any class of equity interest, by vote or value); or
• “A publicly traded company, defined as an issuer, the securities of which are listed on an exchange registered as a national securities exchange under Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f).”

Allowable Expenses

Permissible expenses have been expanded – from the defined payroll costs and qualified rent, utilities, mortgage interest, and other interest payments – to also include:

• Certain employer-provided group insurance payments: Costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums
• Refinancing of SBA EIDL loans made between Jan. 31 and April 3 of 2020
• Covered operations expenditures: Payments 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: Costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation
• Covered supplier costs: Payments made to suppliers of goods pursuant to contracts, orders, or purchase orders in effect before the covered period (or, for perishable goods, in effect before or during the covered period), for the supply of goods that "are essential to the operations of the borrower at the time at which the expenditure is made"
• Covered worker protection expenditures: Expenditures made to help the business comply with federal, state, or local requirements or guidelines related to worker and customer safety amid COVID-19, such as the purchase of PPE or facility modifications such as ventilation and filtration systems, physical barriers, and screening capabilities 

Note: At least 60% of the PPP loan proceeds shall e used for payroll costs.

Gross Receipts

The 2nd Draw Rule includes specific definitions and rules for what constitutes “gross receipts.”

• Gross receipts do include: “All revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.”
• Gross receipts excludes: 
  • “Taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); 
  • “Proceeds from transactions between a 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.”
  • The amount of any first-draw loan 
  • Net capital gains or losses as these terms are defined and reported on IRS tax return forms
• “All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts,” the IFR states.
• Affiliates: Specific guidance is provided for borrowers with affiliates and borrowers that acquired or were acquired by affiliate during 2020; gross receipts of former affiliates are not included.
• Eligible nonprofit, veterans, nonprofit news, 501(c)(6), and destination marketing organizations should use the gross receipts definition in IRC Section 6033.