The Bottom Line
The Bottom Line is where Klatzkin’s advisors provide analysis and insight into key developments in taxation, accounting, and other issues and how they affect businesses and individual taxpayers.

Second Draw PPP Loan Essentials

By LAURA WEBER-CARNEVALE, CPA

January 11, 2021

Update: The application window for the PPP2 opened today, January 15, 2021, for lenders with $1B or less in assets and will reopen to all participating lenders on January 19, 2021, at 9:00 am ET.  

The Consolidated Appropriations Act, 2021 (CAA) was passed on December 27, 2020, and there has been anticipation surrounding changes to the Paycheck Protection Program (PPP). The funding has restarted the program for first-time applicants and created the opportunity to receive a second draw (PPP2) loan. The loan provides needed relief to those businesses, including hotels and restaurants that continue to struggle as the pandemic persists. Unfortunately, without guidance from the Small Business Administration (SBA), New Jersey and Pennsylvania businesses have been unable to act. Last week the SBA issued a new Interim Final Rule (IFR), which provides essential details regarding the PPP2 loan. To help clients, prospects, and others, Klatzkin has provided a summary of the key information below.

Eligibility Criteria

Many changes have been made to the eligibility rules to ensure those with the greatest need have access to additional funds. To qualify for a PPP2 loan, a business must have 300 or fewer employees, experienced a revenue reduction in 2020, and will use the full amount of the first loan on eligible expenses before the second loan disbursement.

The CAA requires a business to have experienced a revenue reduction of 25% or greater in 2020 compared to 2019. To calculate, a borrower must compare gross receipts for any quarter in 2020 with the corresponding quarter in 2019. The SBA requires substantiation through quarterly and annual tax filings. This is important for those who may not have had a quarter-to-quarter reduction but experienced a yearly reduction. Under these circumstances, an applicant would be considered eligible. It is important to note that any forgiven amount from the first loan should not be included in the gross receipts’ calculation.

Excluded Entities

An entity that was not eligible to apply for an initial loan is also ineligible for receiving a PPP2 loan. Several other businesses are not eligible to participate, including:

  • Organizations primarily engaged in political or lobbying activities, including research or advocacy in public policy, political strategy, or self-described think tanks.
  • Certain businesses organized in China or Hong Kong, or others with ties to this country.
  • Shuttered Venue Operators Grant recipients.
  • Any business or organization in which the President, Vice President, Head of an Executive Department, Members of Congress, or their spouse owns, controls, or holds at least 20% of any stock or equity class.
  • Any publicly-traded company where the securities are listed on an exchange registered as a National Securities Exchange.

Loan Amount Calculation

The maximum amount an applicant may receive is equal to the lesser of two and a half months of average monthly payroll or $2M. The only exception is for hotels, restaurants, and other businesses with a NAICS code starting with 72, as they are permitted to use three and a half months of average monthly payroll. When making the calculation, the relevant period is either the 12 months before the loan is made or 2019. Independent contractors and sole proprietors are also permitted to use the precise one-year period if they choose not to use 2019 or 2020 when determining payroll costs.

Loan Application

New Jersey and Pennsylvania businesses interested in applying for a PPP2 loan need to use the updated PPP Second Draw Borrower Application Form. The SBA announced that certain community lending institutions (CFIs) would accept applications from borrowers for first-time PPP loans and PPP2 loans on Wednesday, January 13, 2021. Both loan programs will then be open to all lenders a few days after the opening for CFIs, but the SBA has yet to specify a date.


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Given the rapid pace at which things are moving, it is essential to review your situation and determine eligibility carefully. Since there are several new rules, including documentation requirements, it is critical to work with a qualified advisor to guide you through the process. If you have questions about the information outlined above or need assistance with a PPP2 loan or another tax or accounting issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.

©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.

About the Author

Laura is the Partner-in-Charge of Klatzkin’s Newtown office and focuses on providing accounting and tax solutions to companies in the real estate, professional services, and manufacturing industries. She also works with business owners and high net worth individuals optimizing their estate tax planning strategy. While clients look to her for compliance and planning, it’s the...

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