The Small Business Administration has updated its Paycheck Protection Program (PPP) FAQs to address changes made in December 2020 by the Economic Aid Act. Among other things, the Act extended until March 31, 2021, the date by which new PPP loan applications may be filed, including from certain existing PPP borrowers seeking a second-draw PPP loan. Note that until March 10, 2021, new PPP loan applications may only be filed by certain borrowers with fewer than 20 employees.
SBA’s revised FAQ #46 offers new clarity for borrowers seeking second-draw loans. To be eligible for a second-draw PPP loan, applicants must have had a 25% drop in gross revenues between a comparable calendar quarter in 2019 and 2020. As a matter of law, a second-draw loan applicant also must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” According to FAQ #46, if a second-draw PPP loan applicant can show the required 25% drop in gross revenues, it will be deemed to have made the statutory “necessity certification” in good faith. Simply put, while necessity certifications are required of second-draw loan applicants, SBA apparently does not intend to review or audit certifications made by applicants that show the required gross revenue drop in their loan applications.
FAQ #46 also states that SBA will not combine first- and second- draw loan amounts for purposes of the $2 million loan threshold that triggers the need for a Form 3509 certification questionnaire when filing for loan forgiveness.
Reminder: all dealers, including those who took out PPP loans, should discuss with their financial advisors their eligibility to claim Employee Retention Tax Credits (ERTC). The Economic Aid Act retroactively allows PPP loan borrowers to claim the ERTC for qualified wages not paid for with PPP loan proceeds. It also extended ERTC eligibility through June 30, 2021. To claim the ERTC, a dealership must have had to experience either 1) a full or partial shutdown due to a government order related to the coronavirus pandemic or 2) a significant decline in revenue in a calendar quarter. Regarding the latter, gross receipts must have fallen by at least 50% for the same calendar quarter from 2019 to 2020, or at least 20% for the same calendar quarter from 2019 to 2021. The IRS recently issued updated guidance on this matter.
As always, dealers should discuss the foregoing issues with their financial and legal advisors. Dealers can access more information through the SBA PPP website and NADA’s Coronavirus Hub.