On January 11, 2021, the United States Small Business Administration reopened the Paycheck Protection Program economic stimulus program which began under the CARES Act of 2020. In addition to making additional funds available to borrowers for the first time and to further clarify the general eligibility of PPPs, Congress gave a subset of existing PPP borrowers a chance to secure a second loan. Eligibility for Second Draw Loans is much narrower than the initial PPP requirements, and potential Second Draw borrowers should carefully consider their eligibility before applying for a Second Draw PPP loan.


On March 27, 2020, the President enacted the Coronavirus Aid, Relief and Economic Security Act 2020 (the “CARES Act”). Section 1102 of the CARES Act temporarily authorizes the SBA to guarantee 100% of loans made under the Paycheck Protection Program (“PPP”). Under the PPP, the United States Small Business Administration (the “SBA”) guaranteed forgivable loans to small businesses and other eligible borrowers. On December 27, 2020, the President signed the Law on Economic Assistance to Small Businesses, Nonprofits, and Hard-Affected Sites (the “Economic Aid Act”) And, among other things, extended the PPP to new borrowers for the first time and created a more stringent“ second draw ”regime allowing existing PPP borrowers to take out additional forgivable loans.

Eligibility conditions for the second draw

Like the original PPP (now called “first draw”), potential second draw PPP borrowers must meet certain eligibility criteria. Borrowers who knowingly distort their eligibility may commit bank fraud or otherwise be civilly and criminally liable under applicable law.

As a first step, a borrower is only eligible for a second-draw PPP if he (A) is a type of business or another entity or individual that is expressly eligible under the rules of the second-draw PPP,[1] (B) has 300 employees or less, taking into account applicable SBA Membership Rules (unless an exception to those SBA Membership Rules applies), and (C) has had at least one fiscal quarter in 2020 where gross revenue was at least 25% lower than the corresponding quarter in 2019 (although the reference quarter may vary for seasonal businesses or businesses that were not in operation in the corresponding fiscal quarter in 2019) . In addition, the potential Second Drawdown borrower must also (1) have received a first draw PPP loan and (2) have already used or use all of their first draw PPP loan only on the uses authorized under of the PPP.

Several types of potential borrowers were in themselves first-draw PPP ineligible (such as hedge funds, illegal businesses, employer households, bankrupt businesses, and criminals), whether or not they reached employee thresholds. The second-draw PPP added to the enumerated list of ineligible persons per se by also including:

  • Persons or entities primarily engaged in political activities or lobbying activities;

  • Entities with significant investors organized in or having significant operations in the People’s Republic of China or the Hong Kong Special Administrative Region;

  • Entities with a board member who is a resident of the PRC;

  • Persons or entities registered under the Foreign Agents Registration Act of 1938 (which probably includes many law firms);

  • Closed site operations that receive subsidies under another section of the Economic Aid Act;

  • Entities with significant investors who are senior members of government or their spouses;

  • Public enterprises (which are now also in themselves ineligible for PPP First Draw loans);

  • Those who have already received a PPP Second Draw loan; and

  • Entities that have closed permanently.

First-draw PPP borrowers whose eligibility is currently disputed by the SBA are also ineligible for a second-draw PPP loan until the challenge is resolved.

PPP loan conditions for the second drawdown

Second-draw PPP loans generally have the same terms as first-draw PPP loans (i.e., second-draw PPP loans are usually capped at $ 2,000,000 in total. Newer businesses, franchisees, farmers and pastoralists, the self-employed and other types of borrowers may have different maximum loan amounts.

As with the first-draw PPP, second-draw PPP borrowers must certify, among other things, that the current economic uncertainty makes the loan request necessary to support the applicant’s ongoing operations.

Other changes to PPP conditions

The Economic Aid Act extended the permitted uses of PPP loans to include not only labor costs and benefits, rent, utilities, and mortgages and other interest charges, but also operating expenses. Covered Property Damage Costs, Covered Supply Costs, and Covered Worker Protection Expenses. These expanded permitted uses apply to both new first-draw PPP and second-draw PPP loans.

The Law on Economic Aid has also clarified the tax treatment of expenses paid with the proceeds of PPP loans, which is discussed separately in relation to the other tax provisions of the Law on Economic Aid.


The reopening of the First Draw PPP and the creation of the Second Draw PPP offer welcome relief to businesses that continue to struggle with the effects of the COVID-19 pandemic and the resulting economic downturn. As with the first-draw PPP, borrowers should carefully consider their eligibility and intended use of funds to ensure that second-draw PPP loans are properly obtained and used and to ensure the best chance of repayment once proceeds. of the loan exhausted.

[1] Note: Eligible applicants are: “A commercial enterprise, independent contractor, qualifying self-employed person, sole proprietor, non-profit organization eligible for a PPP first-draw loan, a veterans organization, a tribal business enterprise, housing co-op, small agricultural co-op, eligible 501 (c) (6) destination marketing organization or organization, or qualifying non-profit news organization ”(excerpt from IFR of January 6 2021 for second-draw PPP loans).

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Margarita W. Wilson

The author Margarita W. Wilson