PPP Extended, Expanded to Provide More Funding (Commentary)

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The Paycheck Protection Program (PPP) has been extended and expanded to provide more funding for first-time borrowers and to allow some existing borrowers the opportunity to receive additional help. 

The Economic Aid Act, which become law late last year, allocates an additional $284 billion to the program and authorizes the Small Business Administration to guarantee loans through March 31. On Jan. 6, the SBA provided guidance in the form of Interim Final Rules (First Draw IFR) (Second Draw (IFR) to address eligibility and applications to the expanded program. 

This is an Opinion

First Draw PPP Loans, available to first-time borrowers, have a maximum loan amount of the lesser of $10 million or an amount equal to 2.5 times average monthly payroll costs. First Draw PPP Loans are available to borrowers that were in operation on Feb. 15, 2020 and generally meet the same requirements as borrowers under the original PPP program.

Second Draw PPP Loans, available to those who have already received a First Draw PPP Loan, are generally subject to many of same terms including:

  • The guarantee percentage is 100%
  • No collateral will be required
  • No personal guarantees will be required
  • The interest rate will be 100 basis points or one percent, calculated on a non-compounding, non-adjustable basis
  • The maturity is five years
  • All loans will be processed by all lenders under delegated authority and lenders will be permitted to rely on certifications of the borrower to determine the borrower’s eligibility and use of loan proceeds. 

But there are some important differences between the First Draw PPP Loans and Second Draw PPP Loans. The maximum loan amount for a Second Draw PPP Loans is equal to the lesser of $2 million or 2.5 months of the borrower’s average monthly payroll costs. 

The relevant time period for calculating a borrower’s payroll costs for a Second Draw PPP Loan is either the 12-month period before when the loan is made or calendar year 2019. Additionally, if a borrower received a First Draw PPP Loan, the borrower is only eligible for a Second Draw PPP Loan if it: 

  • has 300 or fewer employees;
  • experienced at least a 25% revenue reduction for any quarter in 2020 relative to 2019; and
  • has used or will use the full amount of the First Draw PPP Loan for authorized purposes on or before the expected date of disbursement of the Second Draw PPP Loan.

Borrowers with a NAICS code beginning with 72 (including hotels and restaurants) are eligible for Second Draw PPP loans provided they have no more than 300 employees per physical location and meet the 25% revenue reduction requirement. These borrowers have a maximum loan size of the lesser of 3.5 months of the borrower’s average monthly payroll costs or $2 million.

For all borrowers, the documentation required to substantiate an applicant’s payroll cost calculations is generally the same as documentation required for First Draw PPP Loans. But no additional documentation to substantiate payroll costs will be required if the borrower (i) used calendar year 2019 figures to determine its First Draw PPP Loan amount, (ii) used calendar year 2019 figures to determine its Second Draw PPP Loan amount (instead of calendar year 2020), and (iii) the lender for the applicant’s Second Draw PPP Loan is the same as the lender that made the applicant’s First Draw PPP Loan.

For Second Draw PPP Loans with a principal amount greater than $150,000, the applicant must also submit documentation adequate to establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019.

Lenders approved to make First Draw PPP Loans may make Second Draw PPP Loans under the same terms and conditions. For a Second Draw PPP Loan greater than $150,000, the lender must confirm the dollar amount and percentage of the borrower’s revenue reduction by performing a good faith review, of the borrower’s calculations concerning the borrower’s revenue reduction.

Second Draw PPP Loans are eligible for forgiveness on the same terms and conditions as First Draw PPP Loans, except that Second Draw PPP Loan borrowers with a principal amount of $150,00 or less are required to provide documentation of revenue reduction if not provided at the time of loan application.

The Economic Aid Act also set aside funds for new and smaller borrowers. In conjunction with this, the SBA announced it would take a number of steps to ensure increased access to PPP loans for minority, underserved, veteran, and women-owned business concerns. Most notably, the SBA said it will accept PPP loan applications only from community financial institutions for at least the first two days when the PPP loan portal reopens.


Robert T. Smith heads the Finance and Commercial Transactions Practice Group at Friday Eldredge & Clark. His diverse corporate practice focuses on representing companies and financial institutions in general business, transactional, securities and regulatory matters.

Katherine C. Campbell is an associate in the Litigation Practice Group. She serves as litigation counsel for individuals and businesses in complex business and commercial disputes including employment claims, collective action wage and hour claims, and breach of contract matters.

Madeline O. McElhanon is an associate in the Finance & Commercial Transactions Practice Group where she advises banking and other corporate clients on transactional, tax, securities and regulatory matters.