[Federal Register Volume 86, Number 9 (Thursday, January 14, 2021)]
[Rules and Regulations]
[Pages 3712-3723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00452]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 120 and 121

[Docket No. SBA-2021-0002]
RIN 3245-AH63


Business Loan Program Temporary Changes; Paycheck Protection 
Program Second Draw Loans

AGENCY: U.S. Small Business Administration.

ACTION: Interim final rule.

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SUMMARY: This interim final rule announces the implementation of 
section 311 of the Economic Aid to Hard-Hit Small Businesses, 
Nonprofits, and Venues Act (the Economic Aid Act). The Economic Aid Act 
authorizes the U.S. Small Business Administration to guarantee 
additional loans under the temporary Paycheck Protection Program, which 
was originally established under the Coronavirus Aid, Relief, and 
Economic Security Act to provide economic relief to small businesses 
nationwide adversely impacted under the Coronavirus Disease 2019 
(COVID-19) Emergency Declaration (COVID-19 Emergency Declaration) 
issued by President Trump on March 13, 2020. Section 311 of the 
Economic Aid Act adds a second temporary program to SBA's 7(a) Loan 
Program titled, ``Paycheck Protection Program Second Draw Loans.'' This 
interim final rule implements the key provisions of section 311 of the 
Economic Aid Act and requests public comment.

DATES: 
    Effective Date: This interim final rule is effective January 12, 
2021.
    Applicability Date: This interim final rule applies to loan 
applications and applications for loan forgiveness submitted for 
Paycheck Protection Program Second Draw Loans.
    Comment Date: Comments must be received on or before February 16, 
2021.

ADDRESSES: You may submit comments, identified by number SBA-2021-0002 
through the Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    SBA will post all comments on www.regulations.gov. If you wish to 
submit confidential business information (CBI) as defined in the User 
Notice at www.regulations.gov, please send an email to <a href="/cdn-cgi/l/email-protection#ed9d9d9dc0848b9fad9e8f8cc38a829b"><span class="__cf_email__" data-cfemail="700000005d191602300312115e171f06">[email protected]</span></a>. 
All other comments must be submitted through the Federal eRulemaking 
Portal described above. Highlight the information that you consider to 
be CBI and explain why you believe SBA should hold this information as 
confidential. SBA will review the information and make the final 
determination whether it will publish the information.

FOR FURTHER INFORMATION CONTACT: Call Center Representative at 833-572-
0502, or the local SBA Field Office; the list of offices can be found 
at https://www.sba.gov/tools/local-assistance/districtoffices.

SUPPLEMENTARY INFORMATION:

I. Background Information

    On December 27, 2020, President Trump signed the Economic Aid to 
Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid 
Act) (Pub. L. 116-260) into law to provide continued assistance to 
individuals and businesses that have been financially impacted by the 
ongoing coronavirus pandemic. Section 311 of the Economic Aid Act added 
a new temporary section 7(a)(37) to the Small Business Act (15 U.S.C. 
636(a)(37)). This new section authorizes the U.S. Small Business 
Administration (SBA or the Administration) to guarantee Paycheck 
Protection Program Second Draw Loans (PPP Second Draw Program), under 
generally the same terms and conditions available under the Paycheck 
Protection Program (PPP) established under section 7(a)(36) of the 
Small Business Act (15 U.S.C. 636(a)(36)). Under section 311, SBA may 
guarantee loans under the PPP Second Draw Program through March 31, 
2021 (``Second Draw PPP Loans'') to borrowers that previously received 
a PPP loan under section 7(a)(36) of the Small Business Act (``First 
Draw PPP Loans'') and have used or will use the full amount of the 
initial PPP loan for authorized purposes on or before the expected date 
of disbursement of the Second Draw PPP Loan.
    Like First Draw PPP Loans, Second Draw PPP Loans are intended to 
provide expeditious relief to America's small

[[Page 3713]]

businesses. Second Draw PPP Loans generally are guaranteed by SBA under 
the same terms, conditions, and processes as First Draw PPP Loans. SBA 
guarantees 100 percent of Second Draw PPP Loans and SBA may forgive up 
to the full principal loan amount. Second Draw PPP Loans are subject to 
SBA's and the Department of the Treasury's (Treasury's) consolidated 
interim final rules implementing updates to the Paycheck Protection 
Program for First Draw PPP Loans (``Consolidated First Draw PPP IFR'') 
issued concurrently with this interim final rule (IFR) \1\ and all PPP 
loan program requirements, except as specified in this IFR. The key 
differences between First Draw PPP Loans and Second Draw PPP Loans are 
described in this IFR, which explains the loan terms, eligibility 
requirements, and application process for Second Draw PPP Loans.
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    \1\ The Consolidated First Draw PPP IFR titled ``Business Loan 
Program Temporary Changes: Extension of and Changes to Paycheck 
Protection Program'' restates existing regulatory provisions to 
provide lenders and new PPP borrowers a single regulation to consult 
on borrower eligibility, lender eligibility, and loan application 
and origination requirements issues for new First Draw PPP loans, as 
well as general rules relating to First Draw PPP Loan increases and 
loan forgiveness.
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II. Comments and Immediate Effective Date

    This interim final rule is being issued without advance notice and 
public comment because section 303 of the Economic Aid Act authorizes 
SBA to issue regulations to implement the Economic Aid Act without 
regard to notice requirements. In addition, this rule is being issued 
to allow for immediate implementation of this program. The intent of 
the Economic Aid Act is that SBA provide relief to America's small 
businesses expeditiously. The last day to apply for and receive a PPP 
loan is March 31, 2021. Given the short duration of this program, and 
the urgent need to issue loans quickly, the Administrator in 
consultation with the Secretary has determined that it is impractical 
and not in the public interest to provide a 30-day delayed effective 
date. An immediate effective date will give small businesses the 
maximum amount of time to apply for loans and lenders the maximum 
amount of time to process applications before the program ends. This 
good cause justification also supports waiver of the 60-day delayed 
effective date for major rules under the Congressional Review Act at 5 
U.S.C. 808(2). Although this IFR is effective immediately, comments are 
solicited from interested members of the public on all aspects of the 
interim final rule. These comments must be submitted on or before 
February 16, 2021. SBA will consider these comments and the need for 
making any revisions as a result of these comments.

III. Summary of Key Terms of PPP Second Draw Loans

    The rules applicable to Second Draw PPP Loans are published in 
section IV of this IFR. This summary provides additional information 
and explains the key terms in the IFR. All references to subsections 
refer to section IV.
    Second Draw PPP Loans are generally subject to the same terms, 
conditions and requirements as First Draw PPP Loans. These include, but 
are not limited to the following terms:
    <bullet> The guarantee percentage is 100 percent.
    <bullet> No collateral will be required.
    <bullet> No personal guarantees will be required.
    <bullet> The interest rate will be 100 basis points or one percent, 
calculated on a non-compounding, non-adjustable basis.\2\
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    \2\ Section 339 of the Economic Aid Act added ``calculated on a 
non-compounding, non-adjustable basis'' to the maximum interest rate 
for a PPP loan.
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    <bullet> The maturity is five years.
    <bullet> 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.
    Subsection (b) of this IFR confirms that these terms apply to 
Second Draw PPP Loans. Subsection (b) also confirms that SBA's 
Consolidated First Draw PPP IFR, Frequently Asked Questions (FAQs), and 
other guidance about PPP loans under section 7(a)(36) of the Small 
Business Act (15 U.S.C. 636(a)(36)) apply to Second Draw PPP Loans, 
except as specified in this IFR.\3\
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    \3\ SBA will be revising the FAQs to conform to the Economic Aid 
Act as quickly as feasible.
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    The Economic Aid Act includes terms and conditions, including but 
not limited to terms relating to eligibility and a borrower's maximum 
loan amount, that apply only to Second Draw PPP Loans and do not apply 
to First Draw PPP Loans, regardless of when the First Draw PPP Loan is 
made. These terms and conditions specific to Second Draw PPP Loans are 
summarized below.

A. Eligibility Requirements

1. General Eligibility Requirements
    In general, the Economic Aid Act made the eligibility requirements 
for Second Draw PPP Loans narrower than the eligibility requirements 
for First Draw PPP Loans. The Economic Aid Act generally provides that 
a borrower is eligible for a Second Draw PPP Loan only if it has 300 or 
fewer employees and experienced a revenue reduction in 2020 relative to 
2019 (described further below).\4\ In addition, the Economic Aid Act 
provides that a Second Draw PPP Loan may only be made to an eligible 
borrower that (i) has received a First Draw PPP Loan, and (ii) has 
used, or will use, the full amount of the First Draw PPP Loan on or 
before the expected date on which the Second Draw PPP Loan is disbursed 
to the borrower.\5\ Accordingly, subsections (c)(1)(i) through 
(c)(1)(iv) of this IFR implement these criteria. Subsection (c)(1)(ii) 
of the IFR clarifies that ``the full amount'' of the borrower's First 
Draw PPP Loan includes the amount of any increase on such First Draw 
PPP Loan made pursuant to the Economic Aid Act. In addition, subsection 
(c)(1)(ii) of the IFR clarifies that the borrower must have spent the 
full amount of its First Draw PPP Loan on eligible expenses under the 
PPP rules to be eligible for a Second Draw PPP Loan. This clarification 
will help ensure program integrity by preventing a borrower from 
receiving a Second Draw PPP Loan if the borrower has not complied with 
PPP loan program requirements.\6\
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    \4\ See paragraph 7(a)(37)(A)(iv) of the Small Business Act.
    \5\ See paragraph 7(a)(37)(O) of the Small Business Act.
    \6\ Subsection (B)(11) of the Consolidated First Draw PPP IFR 
specifies that the proceeds of a PPP loan may be spent only on 
certain eligible expenses.
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2. Revenue Reduction Requirement
    The Economic Aid Act provides that, to be eligible for a Second 
Draw PPP Loan, the borrower must have experienced a revenue reduction 
of 25% or greater in 2020 relative to 2019.\7\ A borrower must 
calculate this revenue reduction by comparing the borrower's quarterly 
gross receipts for one quarter in 2020 with the borrower's gross 
receipts for the corresponding quarter of 2019. For example, a borrower 
with gross receipts of $50,000 in the second quarter of 2019 and gross 
receipts of $30,000 in the second quarter of 2020 has experienced a 
revenue reduction of 40 percent between the quarters, and is therefore 
eligible for a Second Draw PPP loan (assuming all other eligibility 
criteria are met). Subsection (c)(1)(iv)(A) of the IFR reflects this 
methodology. Subsection (c)(1)(iv)(B) of the IFR provides that a 
borrower that was in operation in all four quarters of 2019 is deemed 
to have experienced the required revenue reduction if it

[[Page 3714]]

experienced a reduction in annual receipts of 25 percent or greater in 
2020 compared to 2019 and the borrower submits copies of its annual tax 
forms substantiating the revenue decline. This provision will allow a 
borrower to provide annual tax return forms to substantiate its revenue 
reduction. The Administrator, in consultation with the Secretary of the 
Treasury (Secretary), has determined that this is necessary to improve 
administrability of Second Draw PPP Loans by providing borrowers an 
additional verifiable method for substantiating their revenue 
reduction. This method will be particularly important for small 
borrowers that may not have quarterly revenue information readily 
available. Moreover, this approach is appropriate because, if annual 
filings show a 25 percent revenue reduction, then at least one quarter 
in 2020 would have had at least a 25 percent revenue reduction. A 
borrower that did not experience a 25 percent annual decline in 
revenues, or that was not in operation in all four quarters of 2019, 
may still meet the revenue reduction requirement under one of the 
quarterly measurements described above.
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    \7\ See paragraph 7(a)(37)(A)(iv) of the Small Business Act.
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    The Economic Aid Act does not include a general definition of gross 
receipts for purposes of determining a borrower's revenue reduction.\8\ 
Subsection (c)(2) of the IFR defines gross receipts consistent with the 
definition of receipts in 13 CFR 121.104 of SBA's size regulations 
because this definition appropriately captures the type of income that 
is typically included in a small business's gross receipts.\9\ 
Moreover, this definition will enhance the administrability of Second 
Draw PPP Loans because it is a definition already used by the 
Administration and many small businesses.
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    \8\ For an eligible nonprofit organization, a veterans 
organization, an eligible nonprofit news organization, eligible 
501(c) organization, or eligible destination marketing organization, 
gross receipts has the meaning in section 6033 of the Internal 
Revenue Code of 1986. See paragraph 7(a)(37)(I)(ii) of the Small 
Business Act. Subsection (c)(2) of the IFR clarifies that this 
definition, which generally relates to eligible nonprofit 
organizations, applies only to eligible nonprofit news organizations 
rather than to all eligible news organizations.
    \9\ Subsection (c)(2) of the IFR generally defines gross 
receipts to 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. Generally, receipts are considered ``total 
income'' (or in the case of a sole proprietorship, independent 
contractor, or self-employed individual ``gross income'') plus 
``cost of goods sold,'' and excludes net capital gains or losses as 
these terms are defined and reported on IRS tax return forms. Gross 
receipts do not include the following: 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. 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. Subsection (c)(2) also adapts the methodology for 
calculating affiliate receipts from 13 CFR 121.104.
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    The IFR specifies that any forgiveness amount of a First Draw PPP 
Loan that a borrower received in calendar year 2020 is excluded from a 
borrower's gross receipts. Excluding the forgiveness amount from a 
borrower's gross receipts is consistent with section 7A(i) of the Small 
Business Act, which expressly excludes PPP forgiveness amounts from 
being taxed as income.\10\ This clarification ensures the effectiveness 
of the second draw loan program by ensuring that a borrower is not 
disqualified from receiving a Second Draw PPP Loan because it received 
forgiveness on a First Draw PPP Loan. This furthers the purpose of the 
second draw loan provisions, which is to deliver additional aid to 
small businesses that previously received a First Draw PPP Loan.
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    \10\ Section 1106 of the CARES Act (15 U.S.C. 9005) was 
redesignated as section 7A, transferred to the Small Business Act 
(15 U.S.C. 631 et seq.), and inserted so as to appear after section 
7 of the Small Business Act (15 U.S.C. 636) in section 304(b) of the 
Economic Aid Act.
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3. Business Concerns With More Than One Physical Location
    Under the CARES Act, any single business entity that is assigned a 
NAICS code beginning with 72 (including hotels and restaurants) and 
employs not more than 500 employees per physical location is eligible 
to receive a First Draw PPP Loan.\11\ In addition, as discussed below, 
under the Consolidated First Draw PPP IFR, SBA's affiliation rules (13 
CFR 121.301) do not apply to any business entity that is assigned a 
NAICS code beginning with 72 and that employs not more than a total of 
500 employees.\12\ As a result, if each hotel or restaurant location 
owned by a parent business is a separate legal business entity and 
employs not more than 500 employees, each hotel or restaurant location 
is permitted to apply for a separate PPP loan provided it uses its 
unique EIN.
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    \11\ Paragraph 7(a)(36)(D)(iii)(I) of the Small Business Act.
    \12\ Paragraph 7(a)(36)(D)(iv) of the Small Business Act.
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    Section 317 of the Economic Aid Act modified this provision for 
Second Draw PPP Loans by reducing the limit on employees per physical 
location to 300. Accordingly, a single business entity that is assigned 
a NAICS code beginning with 72 is eligible to receive a Second Draw PPP 
Loan if it employs no more than 300 employees per physical location and 
meets the revenue reduction requirements and otherwise satisfies the 
eligibility criteria described in this IFR.\13\ Under section 317 of 
the Economic Aid Act, the same standard applies to certain news 
organizations.\14\ Subsections (c)(3) and (c)(4) of the IFR implement 
these statutory provisions. Borrowers may consult PPP Frequently Asked 
Question (FAQ) 24 \15\ for guidance on these standards for business 
concerns with more than one physical location, except that, for Second 
Draw PPP Loans, the number of employees per physical location is 
limited to 300 rather than 500.
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    \13\ Paragraph 7(a)(37)(D) of the Small Business Act.
    \14\ Paragraph 7(a)(36)(D)(iii)(II) of the Small Business Act.
    \15\ See PPP FAQ #24 (posted April 13, 2020), available at 
https://www.sba.gov/sites/default/files/2020-12/Final%20PPP%20FAQs%20%28December%209%202020%29-508.pdf.
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B. Affiliation Rules

    The same affiliation rules that apply to First Draw PPP Loans apply 
to Second Draw PPP Loans, except as provided in this IFR. As with First 
Draw PPP Loans, in most cases, a borrower is considered together with 
its affiliates to determine eligibility for the PPP.\16\ However, the 
CARES Act waived the affiliation rules for certain categories of 
borrowers.\17\ Paragraph 7(a)(37)(E) of the Small Business Act, as 
amended by the Economic Aid Act, applies the same

[[Page 3715]]

waivers to Second Draw PPP Loans, adds a waiver for certain eligible 
news organizations, and makes adjustments to reflect the reduced size 
requirement for Second Draw PPP Loans. Specifically, business concerns 
with a NAICS code beginning with 72 qualify for the affiliation waiver 
for Second Draw PPP Loans if they employ 300 or fewer employees. 
Eligible news organizations with a NAICS code beginning with 511110 or 
5151 (or majority-owned or controlled by a business concern with those 
NAICS codes) may qualify for the affiliation waiver for Second Draw PPP 
Loans only if they employ 300 or fewer employees per physical 
location.\18\ Subsection (d)(2) implements these revised affiliation 
waivers. SBA also adopted a religious exemption to the affiliation 
rules by regulation,\19\ which applies to Second Draw PPP loans.
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    \16\ Paragraph 7(a)(36)(D)(iv) of the Small Business Act (15 
U.S.C. 636(a)(36)(D)(iv), as added by the CARES Act and amended by 
the Economic Aid Act, waived the affiliation rules contained in 
Sec.  121.103 for (1) any business concern with not more than 500 
employees that, as of the date on which the loan is disbursed, is 
assigned a NAICS code beginning with 72; (2) any business concern 
operating as a franchise that is assigned a franchise identifier 
code by SBA; (3) any business concern that receives financial 
assistance from a company licensed under section 301 of the Small 
Business Investment Act of 1958 (15 U.S.C. 681); and (4)(a) any 
business concern (including any station which broadcasts pursuant to 
a license granted by the Federal Communications Commission under 
title III of the Communications Act of 1934 (47 U.S.C. 301 et seq.) 
without regard for whether such a station is a concern as defined in 
13 CFR 121.105, or any successor thereto) that employs not more than 
500 employees, or the size standard established by the Administrator 
for the NAICS code applicable to the business concern, per physical 
location of such business concern and is majority owned or 
controlled by a business concern that is assigned a NAICS code 
beginning with 511110 or 5151; or (b) any nonprofit organization 
that is assigned a NAICS code beginning with 5151.
    \17\ Paragraph 7(a)(36)(D)(iv) of the Small Business Act.
    \18\ Paragraph 7(a)(37)(E) of the Small Business Act.
    \19\ See section (B)(3)(c) of the Consolidated First Draw PPP 
IFR.
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C. Excluded Entities

    An entity that is ineligible to receive a First Draw PPP Loan under 
the CARES Act or Consolidated First Draw PPP IFR is also ineligible for 
a Second Draw PPP Loan.\20\ Subsection (e)(1) of the IFR implements 
this restriction. Subsection (e)(1) ensures that a borrower that 
received a First Draw PPP Loan despite being ineligible to receive the 
loan is not eligible to receive a Second Draw PPP Loan.
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    \20\ Paragraph 7(a)(37)(O) of the Small Business Act provides 
that a Second Draw PPP Loan may be made only to a borrower that 
received a First Draw PPP Loan under paragraph 7(a)(36). In 
addition, section 7(a)(37)(B) provides that the Administrator may 
guarantee covered loans to eligible entities under the same terms, 
conditions, and processes as First Draw PPP Loans.
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    The Economic Aid Act also prohibits several additional categories 
of borrowers from receiving a Second Draw PPP Loan under section 
7(a)(37) of the Small Business Act. These categories of prohibited 
borrowers are listed in subsection (e) of the IFR:
    <bullet> 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 that describes itself as a think 
tank in any public documents; \21\
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    \21\ Paragraph 7(a)(37)(A)(iv)(III)(bb) of the Small Business 
Act.
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    <bullet> 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; \22\
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    \22\ Paragraph 7(a)(37)(A)(iv)(III)(cc) of the Small Business 
Act.
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    <bullet> any person required to submit a registration statement 
under section 2 of the Foreign Agents Registration Act of 1938 (22 
U.S.C. 612); \23\
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    \23\ Paragraph 7(a)(37)(A)(iv)(III)(dd) of the Small Business 
Act.
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    <bullet> a person or entity that receives a grant for shuttered 
venue operators under section 324 of the Economic Aid Act; \24\
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    \24\ Paragraph 7(a)(37)(A)(iv)(III)(ee) of the Small Business 
Act.
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    <bullet> entities in which the President, the Vice President, the 
head of an Executive department, or a Member of Congress, or the spouse 
of such person owns, controls, or holds at least 20 percent of any 
class of equity; \25\ or
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    \25\ Section 322 of the Economic Aid Act.
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    <bullet> 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).\26\
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    \26\ Section 342 of the Economic Aid Act.

In addition, subsection (e)(9) of this IFR provides that an entity that 
has previously received a Second Draw PPP Loan may not receive another 
Second Draw PPP Loan, as required by the Economic Aid Act.\27\ 
Subsection (e)(9) also prohibits an entity that has permanently closed 
from receiving a Second Draw PPP Loan because paragraph 7(a)(37)(A)(iv) 
of the Small Business Act is best understood to describe existing 
businesses. The Administrator, in consultation with the Secretary, has 
determined this provision is also necessary to maintain program 
integrity, prevent abuse, and preserve the availability of Second Draw 
PPP Loan funds for businesses still in operation. Preserving funds for 
such businesses is necessary because only businesses that are still in 
operation will retain employees, which is a primary purpose of the PPP. 
A borrower that has temporarily closed or temporarily suspended its 
business remains eligible for a Second Draw PPP Loan.
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    \27\ Paragraph 7(a)(37)(F) of the Small Business Act.
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D. Payroll Cost Calculation

    In general, section 307 of the Economic Aid Act provides that the 
maximum loan amount for a Second Draw PPP Loan is equal to the lesser 
of two and half months of the borrower's average monthly payroll costs 
or $2 million. Relative to First Draw PPP loans, the Economic Aid Act 
adjusted the methodology for calculating a borrower's payroll costs. 
Unlike First Draw PPP Loans, the Economic Aid Act provides that the 
relevant time period for calculating a borrower's payroll costs for a 
Second Draw PPP Loan is either the twelve-month period prior to when 
the loan is made or calendar year 2019. The Act also provided tailored 
methodologies for certain categories of borrowers. These calculations 
are reflected in subsection (f) of this IFR. Subsection (f) of the IFR 
uses ``calendar year 2020'' to refer to ``the twelve-month period prior 
to when the loan is made.'' Calculating payroll costs based on calendar 
year 2020 rather than the twelve months preceding the date the loan is 
made will simplify the calculations and documentation requirements for 
borrowers because payroll records are more commonly created and 
retained on a calendar-year basis. Allowing borrowers to calculate 
payroll costs based on calendar year 2020 is also not expected to 
result in a significant difference in payroll costs compared to the 
twelve months preceding the date the loan is made because all Second 
Draw PPP Loans will be made in the first quarter of 2021. However, the 
rule notes that Second Draw PPP Loan borrowers who are not self-
employed (including sole proprietorships and independent contractors) 
are also permitted to use the precise 1-year period before the date on 
which the loan is made to calculate payroll costs if they choose not to 
use 2019 or 2020 to calculate payroll costs.
    Consistent with the Economic Aid Act, subsections (f)(3) and (f)(4) 
of the IFR include tailored calculation methodologies for seasonal 
businesses, new entities that did not exist for the full twelve-month 
period preceding the Second Draw PPP Loan, and borrowers assigned a 
NAICS code beginning with 72 at the time of disbursement. For borrowers 
assigned a NAICS code beginning with 72 at the time of disbursement, 
the Economic Aid Act provides that the maximum loan amount is equal to 
three-and-a-half (3.5) months of payroll costs rather than two-and-a-
half (2.5) months.\28\ These subsections also provide that, for a 
borrower with a NAICS code beginning with 72 that would fall into more 
than one category listed in subsection (f) (for example, a business 
with a NAICS code beginning with 72 that is also a seasonal business or 
is also a new entity without 12 months of payroll costs), the borrower 
may calculate its average monthly payroll costs based on the 
methodology that applies to the entity but may use the 3.5 multiplier

[[Page 3716]]

applicable to businesses with a NAICS code beginning with 72. The 
Administrator, in consultation with the Secretary, has determined that 
this methodology is necessary to provide small businesses in the 
accommodation and food services sector the full amount of relief 
provided in the Economic Aid Act while allowing these borrowers to 
calculate their average monthly payroll costs accurately.
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    \28\ Paragraph 7(a)(37)(C)(iv) of the Small Business Act.
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    The Economic Aid Act included a new payroll cost calculation for 
farmers and ranchers receiving First Draw PPP Loans. However, it did 
not specify how payroll costs should be calculated for Second Draw PPP 
Loans to farmers and ranchers. This IFR clarifies that the same general 
calculation for farmers and ranchers applicable to First Draw PPP Loans 
applies to Second Draw PPP Loans, with adjustments that (i) eliminate 
the provision for refinancing of an Economic Injury Disaster Loan 
(EIDL), which does not apply to Second Draw PPP Loans, and (ii) apply 
the choice of time period for calculating a farmer's or rancher's 
payroll costs for Second Draw PPP Loans, consistent with other Second 
Draw PPP Loans. This IFR also specifies that, in calculating a farmer's 
or rancher's maximum loan amount, any employee payroll costs should be 
subtracted from the farmer's or rancher's gross income to avoid double-
counting amounts that represent pay to the employees of the farmer or 
rancher.
    Subsections (f)(7) and (f)(8) of the IFR include tailored 
calculation methodologies for self-employed individuals and 
partnerships. These methodologies are based on the corresponding 
methodologies for self-employed individuals and partnerships that are 
used for First Draw PPP Loans.\29\ These methodologies have been 
adjusted to eliminate the provision for refinancing of an EIDL loan, 
which does not apply to Second Draw PPP loans and to apply the choice 
of time period for calculating payroll costs, consistent with other 
Second Draw PPP loans.
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    \29\ See subsections (B)(4)(b) and (B)(4)(e) of the Consolidated 
First Draw PPP IFR.
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    Finally, subsection (f)(9) provides that businesses that are part 
of a single corporate group shall in no event receive more than 
$4,000,000 of Second Draw PPP Loans in the aggregate. The 
Administrator, in consultation with the Secretary, determined that 
limiting the amount of Second Draw PPP Loans that a single corporate 
group may receive will promote the availability of PPP loans to the 
largest possible number of borrowers, consistent with the CARES and 
Economic Aid Act. The Administrator has concluded that a limitation of 
$4,000,000 is appropriate because it is proportional to the $20,000,000 
maximum amount for corporate groups that is provided under the 
Consolidated First Draw PPP IFR when the maximum loan amount for a 
single PPP loan is $10,000,000.

E. Second Draw PPP Loan Application and Documentation Requirements

    Subsection (g) of this IFR includes the application and 
documentation requirements for Second Draw PPP Loans. The documentation 
required to substantiate an applicant's payroll cost calculations is 
generally the same as documentation required for First Draw PPP Loans. 
However, no additional documentation to substantiate payroll costs will 
be required if the applicant (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. In such cases, additional documentation is not required 
because the lender already has the relevant documentation supporting 
the borrower's payroll costs. The lender may request additional 
documentation, however, if on further review the lender concludes that 
it would be useful in conducting the lender's good-faith review of the 
borrower's loan amount calculation.
    For 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. (The revenue reduction requirement is addressed in 
subsection (c)(1)(iv) of this IFR.) Such documentation may include 
relevant tax forms, including annual tax forms, or, if relevant tax 
forms are not available, quarterly financial statements or bank 
statements. For loans with a principal amount of $150,000 or less, such 
documentation is not required at the time the borrower submits its 
application for a loan, but must be submitted on or before the date the 
borrower applies for loan forgiveness, as required under the Economic 
Aid Act.\30\ If a borrower does not submit an application for loan 
forgiveness, such documentation must be provided upon SBA's request.
---------------------------------------------------------------------------

    \30\ See paragraph 7(a)(37)(I)(i) of the Small Business Act.
---------------------------------------------------------------------------

F. Lender Requirements

    Subsection (g) of this IFR contains the provisions specific to 
lenders for Second Draw PPP Loans. Paragraph 7(a)(37)(K) of the Small 
Business Act, added by the Economic Aid Act, states that a lender 
approved to make First Draw PPP loans may make Second Draw PPP Loans 
under the same terms and conditions as new First Draw PPP Loans. 
Subsection (g)(2) of this IFR provides that lenders are subject to the 
same requirements when making Second Draw PPP Loans as when they are 
making First Draw PPP Loans. These provisions allow a lender approved 
to make Second Draw PPP Loans to use existing program guidance and 
standard operating procedures to the maximum extent practicable.\31\ 
The requirements applicable to PPP lenders are in sections (C) and (D) 
of the Consolidated First Draw PPP IFR. If a borrower has not submitted 
new payroll documentation with its Second Draw PPP Loan application 
because it previously submitted 2019 payroll information to the same 
lender when it applied for its First Draw PPP Loan, then the lender 
must confirm the borrower's average monthly payroll costs based on that 
prior documentation.
---------------------------------------------------------------------------

    \31\ Paragraph 7(a)(37)(N) of the Small Business Act.
---------------------------------------------------------------------------

    In addition, 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, in a reasonable 
time, of the borrower's calculations and supporting documents 
concerning the borrower's revenue reduction. If the lender identifies 
errors in the borrower's calculation or a material lack of 
substantiation in the borrower's supporting documents, the lender 
should work with the borrower to remedy the issue.

G. Loans to Borrowers With Unresolved First Draw PPP Loans

    As described in SBA's interim final rule on SBA Loan Review 
Procedures and Related Borrower and Lender Responsibilities, SBA may 
review any PPP loan, as the Administrator deems appropriate.\32\ 
Subsection (i) of the IFR establishes procedures relating to the 
handling of a Second Draw PPP Loan application by a borrower whose 
First Draw PPP Loan is under review by SBA (``unresolved borrower''). 
If a borrower's First Draw PPP loan is under review by SBA and/or 
information in SBA's possession indicates that the borrower may have 
been ineligible for the First

[[Page 3717]]

Draw PPP Loan it received or for the loan amount it received, the 
lender will receive notification from SBA when the lender submits an 
application for a guaranty of a Second Draw PPP Loan and will not 
receive an SBA loan number until the issue related to the unresolved 
borrower's First Draw PPP Loan is resolved. SBA will resolve issues 
related to unresolved borrowers expeditiously. These procedures are 
designed to promote compliance with the eligibility requirements for 
Second Draw PPP Loans by preventing additional loans from being made to 
borrowers that were not eligible for a First Draw PPP Loan or received 
an impermissible loan amount. At the same time, these procedures do not 
disqualify an eligible unresolved borrower from receiving a Second Draw 
PPP Loan, in recognition that many flags will be resolved in the 
borrower's favor. The Administrator, in consultation with the 
Secretary, has determined that these procedures strike an appropriate 
balance between promoting program integrity and preventing abuse, while 
making Second Draw PPP Loans available to all eligible borrowers as 
expeditiously as possible. SBA will set aside available appropriations 
to fund Second Draw PPP Loans applied for by unresolved borrowers in 
the event they are approved.
---------------------------------------------------------------------------

    \32\ 85 FR 33010, 33012.
---------------------------------------------------------------------------

H. Loan Forgiveness

    Loan forgiveness of Second Draw PPP Loans and the loan review 
process for Second Draw PPP Loans are generally subject to the interim 
final rules regarding Loan Forgiveness and SBA Loan Review Procedures 
and Related Borrower and Lender Responsibilities, as modified to 
conform to the Economic Aid Act by the Consolidated First Draw PPP IFR, 
which is being published concurrently with this IFR. Subsection (j) 
contains forgiveness provisions specific to Second Draw PPP loans.

Table of Contents

(a) Second Draw PPP Loan Program
(b) What requirements apply to Second Draw PPP Loans?
(c) Who is eligible for a Second Draw PPP Loan?
(d) How do SBA's affiliation rules affect an applicant's eligibility 
for a Second Draw PPP Loan?
(e) Who is not eligible for a Second Draw PPP Loan?
(f) What is the maximum loan amount for a Second Draw PPP Loan?
(g) How do I submit an application for a Second Draw PPP Loan and 
what documentation must I provide to demonstrate eligibility?
(h) What do lenders need to know and do?
(i) Will an applicant's Second Draw PPP Loan application be affected 
if there are unresolved issues regarding the applicant's First Draw 
PPP Loan?
(j) Are Second Draw PPP Loans eligible for loan forgiveness?

IV. Paycheck Protection Program Second Draw Loans

(a) Second Draw PPP Loan Program

    Under section 7(a)(37) of the Small Business Act (15 U.S.C. 
636(a)(37)), SBA is authorized to guarantee Paycheck Protection Program 
Second Draw Loans (``Second Draw PPP Loans'').

(b) What requirements apply to Second Draw PPP Loans?

    (1) Second Draw PPP Loans are subject to SBA's and the Department 
of the Treasury's (``Treasury's'') consolidated interim final rule 
implementing the Paycheck Protection Program (``Consolidated First Draw 
PPP IFR'') and all PPP loan program requirements, except as otherwise 
provided in this section, including but not limited to the following 
terms:
    (i) The guarantee percentage is 100 percent.
    (ii) No collateral will be required.
    (iii) No personal guarantees will be required.
    (iv) The interest rate will be 100 basis points or one percent, 
calculated on a non-compounding, non-adjustable basis.
    (v) The maturity is five years.
    (vi) All loans will be processed by all lenders under delegated 
authority and lenders will be permitted to rely on certifications of 
the borrower in order to determine eligibility of the borrower and the 
use of loan proceeds.
    (2) Frequently Asked Questions and other guidance issued by SBA or 
by SBA in consultation with the Department of the Treasury with respect 
to PPP loans under section 7(a)(36) of the Small Business Act (15 
U.S.C. 636(a)(36)) (``First Draw PPP Loans'') apply to Second Draw PPP 
Loans, except as otherwise provided in this section.

(c) Who is eligible for a Second Draw PPP Loan?

    Subject to subsection (e) of this section, below, the following 
applicants are eligible for Second Draw PPP Loans:
    (1) An applicant is eligible for a Second Draw PPP Loan if it is a 
business concern, independent contractor, eligible self-employed 
individual, sole proprietor, nonprofit organization eligible for a 
First 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 \33\ that:
---------------------------------------------------------------------------

    \33\ All terms in this subsection have the same definitions as 
in sections 7(a)(36) and (37) of the Small Business Act and the 
Consolidated First Draw PPP IFR, as applicable.
---------------------------------------------------------------------------

    (i) Previously received a First Draw PPP loan in accordance with 
the eligibility criteria in the Consolidated First Draw PPP IFR;
    (ii) has used, or will use, the full amount of its First Draw PPP 
Loan (including the amount of any increase on such First Draw PPP Loan) 
on authorized uses under subsection (B)(11) of the Consolidated First 
Draw PPP IFR on or before the expected date on which the Second Draw 
PPP Loan will be disbursed; \34\
---------------------------------------------------------------------------

    \34\ A lender must make disbursement of the loan within ten 
calendar days of loan approval. See subsection (D)(7) of the 
Consolidated First Draw PPP IFR.
---------------------------------------------------------------------------

    (iii) employs not more than 300 employees, unless it satisfies the 
alternative criteria for businesses with a North American Industry 
Classification System (``NAICS'') code beginning with 72 and eligible 
news organizations with more than one physical location described in 
subsection (c)(3) or (c)(4) of this section; and
    (iv) (A) experienced a reduction in revenue in calendar year 2020, 
measured as follows:
    (1) the applicant had gross receipts during the first, second, 
third, or fourth quarter in 2020 that demonstrate at least a 25 percent 
reduction from the applicant's gross receipts during the same quarter 
in 2019 (for example, an applicant that had gross receipts of $50,000 
in the second quarter of 2019 and had gross receipts of $30,000 in the 
second quarter of 2020 experienced a 40 percent revenue reduction 
between these two quarters);
    (2) if the applicant was not in business during the first or second 
quarter of 2019, but was in business during the third and fourth 
quarters of 2019, the applicant had gross receipts during the first, 
second, third, or fourth quarter of 2020 that demonstrate at least a 25 
percent reduction from the applicant's gross receipts during the third 
or fourth quarter of 2019 (for example, an applicant that had gross 
receipts of $50,000 in the third quarter of 2019 and had gross receipts 
of $30,000 in the third quarter of 2020-demonstrating a reduction of 40 
percent from the applicant's gross receipts during the third quarter in 
2019);
    (3) if the applicant was not in business during the first, second, 
or third quarter of 2019, but was in business during the fourth quarter 
of 2019, the applicant had gross receipts

[[Page 3718]]

during the first, second, third, or fourth quarter of 2020 that 
demonstrate at least a 25 percent reduction from the fourth quarter of 
2019 (for example, an applicant that had gross receipts of $50,000 in 
the fourth quarter of 2019 and had gross receipts of $30,000 in the 
fourth quarter of 2020-demonstrating a reduction of 40 percent from the 
applicant's gross receipts during the fourth quarter in 2019); or
    (4) if the applicant was not in business during 2019, but was in 
operation on February 15, 2020, the applicant had gross receipts during 
the second, third, or fourth quarter of 2020 that demonstrate at least 
a 25 percent reduction from the gross receipts of the entity during the 
first quarter of 2020 (for example, an applicant that had gross 
receipts of $50,000 in the first quarter of 2020 and had gross receipts 
of $30,000 in the fourth quarter of 2020--demonstrating a reduction of 
40 percent from the applicant's gross receipts during the first quarter 
in 2020).
    (B) An applicant that was in operation in all four quarters of 2019 
is deemed to have experienced the revenue reduction in subsection 
(c)(1)(iv)(A)(1) if it experienced a reduction in annual receipts of 25 
percent or greater in 2020 compared to 2019 and the borrower submits 
copies of its annual tax forms substantiating the revenue decline.
    (2)(i) Gross receipts includes 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. Generally, receipts are considered ``total 
income'' (or in the case of a sole proprietorship, independent 
contractor, or self-employed individual ``gross income'') plus ``cost 
of goods sold,'' and excludes net capital gains or losses as these 
terms are defined and reported on IRS tax return forms. Gross receipts 
do not include the following: 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. 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.
    (ii) Gross receipts of affiliates are calculated as follows:
    (A) Gross receipts of a borrower with affiliates is calculated by 
adding the gross receipts of the business concern with the gross 
receipts of each affiliate.
    (B) If a borrower has acquired an affiliate or been acquired as an 
affiliate during 2020, gross receipts includes the receipts of the 
acquired or acquiring concern. This aggregation applies for the entire 
period of measurement, not just the period after the affiliation arose. 
However, if a concern acquired a segregable division of another 
business concern during 2020, gross receipts do not include the 
receipts of the acquired division prior to the acquisition.
    (C) The gross receipts of a former affiliate are not included. This 
exclusion of gross receipts of such former affiliate applies during the 
entire period of measurement, rather than only for the period after 
which affiliation ceased. However, if a borrower sold a segregable 
division during 2020, the gross receipts will continue to include the 
receipts of the division that was sold.
    (D) All terms in this subsection shall have the meaning attributed 
to them by the IRS.
    (iii) For an eligible nonprofit organization, a veterans 
organization, an eligible nonprofit news organization, an eligible 
501(c)(6) organization, or eligible destination marketing organization, 
gross receipts means gross receipts within the meaning of section 6033 
of the Internal Revenue Code of 1986.
    (iv) The amount of any forgiven First Draw PPP Loan shall not be 
included toward any borrower's gross receipts.
    (3) Any business concern that has more than one physical location 
and that employs not more than 300 employees per physical location is 
eligible to receive a Second Draw PPP Loan if it is assigned a NAICS 
code beginning with 72 at the time of loan disbursement and otherwise 
meets the eligibility criteria in subsection (c)(1).
    (4) Any business concern, or any station which broadcasts pursuant 
to a license granted by the Federal Communications Commission under 
title III of the Communications Act of 1934 (47 U.S.C. 301 et seq.), 
that has more than one physical location and that employs not more than 
300 employees per physical location is eligible to receive a Second 
Draw PPP Loan if it meets the eligibility criteria in subsection (c)(1) 
and: (1) Is majority owned or controlled by a business concern that is 
assigned a NAICS code beginning with 511110 or 5151 or, with respect to 
a public broadcasting entity (as defined in section 397(11) of the 
Communications Act of 1934 (47 U.S.C. 397(11))), has a trade or 
business that falls under such a code; and (2) makes a good faith 
certification that proceeds of the loan will be used to support 
expenses at the component of the organization that produces or 
distributes locally focused or emergency information.

(d) How do SBA's affiliation rules affect an applicant's eligibility 
for a Second Draw PPP Loan?

    (1) Eligibility for Second Draw PPP Loans is governed by the same 
affiliations rules (and waivers) as First Draw PPP Loans, except as 
described in subsection (d)(2).
    (2) The affiliation rules under 13 CFR 121.301(f) are waived with 
respect to eligibility for a Second Draw PPP Loan for:
    (i) Any business concern with not more than 300 employees that, as 
of the date on which the covered loan is disbursed, is assigned a NAICS 
code beginning with 72; and
    (ii) (A) any business concern (including any station which 
broadcasts pursuant to a license granted by the Federal Communications 
Commission under title III of the Communications Act of 1934 (47 U.S.C. 
301 et seq.) without regard for whether such a station is a concern as 
defined in 13 CFR 121.105, or any successor thereto) that employs not 
more than 300 employees, per physical location of such business concern 
and is majority owned or controlled by a business concern that is 
assigned a NAICS code beginning with 511110 or 5151; or
    (B) any nonprofit organization that is assigned a NAICS code 
beginning with 5151.

(e) Who is not eligible for a Second Draw PPP Loan?

    An applicant is not eligible for a Second Draw PPP Loan, even if it 
meets the eligibility requirements of subsection (c) of this section, 
if the applicant is:
    (1) Excluded from eligibility under the Consolidated First Draw PPP 
IFR; \35\
---------------------------------------------------------------------------

    \35\ See generally section (B)(2) of the Consolidated First Draw 
PPP IFR.
---------------------------------------------------------------------------

    (2) a business concern or entity primarily engaged in political 
activities or lobbying activities, as defined in section 3 of the 
Lobbying Disclosure Act of 1995 (2 U.S.C. 1602), including any entity 
that is organized for research or for engaging in advocacy in areas 
such as public policy or political strategy or

[[Page 3719]]

otherwise describes itself as a think tank in any public documents;
    (3) any business concern or entity:
    (i) For which an entity created in or organized under the laws of 
the People's Republic of China or the Special Administrative Region of 
Hong Kong, or that has significant operations in the People's Republic 
of China or the Special Administrative Region of Hong Kong, owns or 
holds, directly or indirectly, not less than 20 percent of the economic 
interest of the business concern or entity, including as equity shares 
or a capital or profit interest in a limited liability company or 
partnership; or
    (ii) that retains, as a member of the board of directors of the 
business concern, a person who is a resident of the People's Republic 
of China;
    (4) any person required to submit a registration statement under 
section 2 of the Foreign Agents Registration Act of 1938 (22 U.S.C. 
612);
    (5) any person or entity that receives a grant for shuttered venue 
operators under section 324 of the Economic Aid to Hard-Hit Small 
Businesses, Nonprofits, and Venues Act;
    (6) any entity in which the President, the Vice President, the head 
of an Executive department, or a Member of Congress, or the spouse of 
such person as determined under applicable common law, directly or 
indirectly holds a controlling interest in the entity, where:
    (i) ``controlling interest'' means owning, controlling, or holding 
not less than 20 percent, by vote or value, of the outstanding amount 
of any class of equity interest in an entity;
    (ii) ``equity interest'' means:
    (A) A share in an entity, without regard to whether the share is 
transferable or classified as stock or anything similar;
    (B) a capital or profit interest in a limited liability company or 
partnership; or
    (C) a warrant or right, other than a right to convert, to purchase, 
sell, or subscribe to a share or interest described in (A) or (B), 
respectively;
    (iii) ``Executive department'' has the meaning given the term in 
section 101 of title 5, United States Code;
    (iv) ``Member of Congress'' means a Member of the Senate or House 
of Representatives, a Delegate to the House of Representatives, and the 
Resident Commissioner from Puerto Rico; and
    (v) For the purpose of determining whether a person has a 
controlling interest in the entity, the securities owned, controlled, 
or held by the President, the Vice President, the head of an Executive 
department, or a Member of Congress, shall be aggregated with the 
securities held by his or her spouse as determined under applicable 
common law;
    (7) any 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), where the terms 
``exchange,'' ``issuer,'' and ``security'' have the meanings given 
those terms in section 3(a) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)) (except SBA will not consider whether a news 
organization that is eligible under subsection (c)(4) is affiliated 
with an entity, which includes any entity that owns or controls such 
news organization, that is an issuer);
    (8) an entity that has previously received a Second Draw PPP Loan; 
or
    (9) an entity that has permanently closed.

(f) What is the maximum loan amount for a Second Draw PPP Loan?

    (1) In general, the maximum loan amount for a Second Draw PPP Loan 
is equal to the lesser of two and half months of the borrower's average 
monthly payroll costs or $2 million, except as otherwise specified in 
this subsection (e). A borrower's average monthly payroll costs may be 
based on calendar year 2020, calendar year 2019,\36\ or as otherwise 
specified in subsections (f)(2) through (f)(9) of this section. 
``Payroll costs'' has the same meaning as in subsections (B)(4)(g) and 
(B)(4)(h) of the Consolidated First Draw PPP IFR and is calculated in 
the same manner. In calculating a borrower's payroll costs, the 
borrower must subtract any compensation paid to an employee in excess 
of $100,000 on an annualized basis, as prorated for the time period 
during which the payments are made or the obligation to make the 
payments is incurred.
---------------------------------------------------------------------------

    \36\ Second Draw PPP Loan borrowers who are not self-employed, 
sole proprietorships, or independent contractors are also permitted 
to use the precise 1-year period before the date on which the loan 
is made to calculate payroll costs if they choose not to use 2019 or 
2020. Since most borrowers will use 2019 or 2020 the rule text 
refers only to 2019 or 2020 for simplicity and readability.
---------------------------------------------------------------------------

    (2) Except as otherwise provided in subsection (f)(3) through 
(f)(7), the maximum amount of a Second Draw PPP Loan is calculated as 
the lesser of:
    (i) The product obtained by multiplying:
    (A) The average total monthly payment for payroll costs incurred or 
paid by the borrower during 2019 or 2020 (at the election of the 
borrower); by
    (B) 2.5; or
    (ii) $2,000,000.
    (3) The maximum amount of a Second Draw PPP Loan to a borrower that 
is a seasonal employer (meaning an employer that does not operate for 
more than 7 months in any calendar year or that during the preceding 
calendar year, had gross receipts for any 6 months of that year that 
were not more than 33.33 percent of the gross receipts of the employer 
for the other 6 months of that year) is calculated as the lesser of:
    (i) The product obtained by multiplying:
    (A) At the election of the borrower, the average total monthly 
payments for payroll costs incurred or paid by the borrower for any 12-
week period between February 15, 2019 and February 15, 2020; by
    (B) 2.5 (or, only for a borrower assigned a NAICS code beginning 
with 72 at the time of disbursement as defined in subsection (f)(10), 
3.5); or
    (ii) $2,000,000.
    (4) The maximum amount of a Second Draw PPP Loan to a borrower that 
did not exist during the 1-year period preceding February 15, 2020, but 
was in operation on February 15, 2020 (``new entity''), is calculated 
as the lesser of:
    (i) The product obtained by multiplying:
    (A) The quotient obtained by dividing:
    (1) The sum of the total monthly payments by the borrower for 
payroll costs paid or incurred by the borrower as of the date on which 
the borrower applies for the Second Draw PPP Loan; by
    (2) the number of months in which those payroll costs were paid or 
incurred; by
    (B) 2.5 (or, only for a borrower assigned a NAICS code beginning 
with 72 at the time of disbursement as defined in subsection (f)(10), 
3.5); or
    (ii) $2,000,000.
    (5) The maximum amount of a Second Draw PPP Loan made to a borrower 
assigned a NAICS code beginning with 72 at the time of disbursement as 
defined in subsection (f)(10) (that is not a seasonal employer or new 
entity addressed in subsection (f)(3) or (f)(4) or a borrower with 
self-employment income or a partnership addressed in subsection (f)(7) 
or (f)(8) of this section) is calculated as the lesser of:
    (i) The product obtained by multiplying:
    (A) The average total monthly payment for payroll costs incurred or 
paid by the borrower during either 2019 or 2020 (at the borrower's 
election) by
    (B) 3.5; or
    (ii) $2,000,000.
    (6) (i) The maximum amount of a Second Draw PPP Loan to a farmer or 
rancher that:

[[Page 3720]]

    (A) Operates as a sole proprietorship or as an independent 
contractor, or is an eligible self-employed individual;
    (B) reports farm income or expenses on a Schedule F (IRS Form 
1040); and
    (C) was in business as of February 15, 2020; is calculated 
according to (ii) or (iii) of this subsection(e)(6), depending on 
whether the borrower has employees.
    (ii) If a borrower meeting the criteria in subsection (6)(i) of 
this section does not have any employees, the maximum loan amount is 
the product obtained by multiplying:
    (A) The gross income of the borrower in 2019 or 2020, as reported 
on a Schedule F (IRS Form 1040), that is not more than $100,000, 
divided by 12; and
    (B) 2.5.
    (iii) If a borrower meeting the criteria in subsection (6)(i) of 
this section has employees, the maximum loan amount is calculated as 
the lesser of:
    (A) The product obtained by multiplying:
    (1) The sum of (i) the difference between gross income and employee 
payroll costs of the borrower in 2019 or 2020 (at the election of the 
borrower), as reported on a Schedule F (IRS Form 1040), that is not 
more than $100,000, divided by 12, and (ii) the average total monthly 
payment for employee payroll costs incurred or paid by the borrower 
during the same year elected by the borrower; by
    (2) 2.5; or
    (B) $2,000,000.
    (7) The maximum amount of a Second Draw PPP Loan to a borrower that 
has income from self-employment and files a Form 1040, Schedule C, is 
calculated as follows, depending on whether the borrower has employees:
    (i) For a borrower that has income from self-employment and does 
not have any employees, the maximum loan amount is the lesser of:
    (A) The product obtained by multiplying:
    (1) The net profit of the borrower in 2019 or 2020, as reported on 
IRS Form 1040 Schedule C, that is not more than $100,000, divided by 
12; and
    (2) 2.5 (or, only for a borrower assigned a NAICS code beginning 
with 72 as defined in subsection (f)(10) at the time of disbursement, 
3.5).
    (ii) For a borrower that has income from self-employment and has 
employees, the maximum loan amount is the lesser of:
    (A) The product obtained by multiplying:
    (1) The sum of (i) the net profit of the borrower in 2019 or 2020 
(at the election of the borrower), as reported on IRS Form 1040 
Schedule C, that is not more than $100,000, divided by 12; (ii) the 
average total monthly payment for employee payroll costs incurred or 
paid by the borrower during the same year elected by the borrower; by
    (2) 2.5 (or, only for a borrower assigned a NAICS code beginning 
with 72 at the time of disbursement as defined in subsection (f)(10), 
3.5); or
    (B) $2,000,000.
    (8) The maximum amount of a Second Draw PPP Loan to a borrower that 
files taxes as a partnership is calculated as the lesser of:
    (i) The product obtained by multiplying:
    (A) The sum of (1) net earnings from self-employment of individual 
general partners in 2019 or 2020 (at the election of the borrower), as 
reported on IRS Form 1065 K-1, reduced by section 179 expense deduction 
claimed, unreimbursed partnership expenses claimed, and depletion 
claimed on oil and gas properties, multiplied by 0.9235,\37\ that is 
not more than $100,000, divided by 12; (2) the average total monthly 
payment for employee payroll costs incurred or paid by the borrower 
during the same year elected by the borrower; by
---------------------------------------------------------------------------

    \37\ This treatment follows the computation of self-employment 
tax from IRS Form 1040 Schedule SE Section A line 4 and removes the 
``employer'' share of self-employment tax, consistent with how 
payroll costs for employees in the partnership are determined.
---------------------------------------------------------------------------

    (B) 2.5 (or, only for a borrower assigned a NAICS code beginning 
with 72 as defined in subsection (f)(10) at the time of disbursal, 
3.5); or
    (ii) $2,000,000.
    (9) Businesses that are part of a single corporate group shall in 
no event receive more than $4,000,000 of Second Draw PPP Loans in the 
aggregate. Corporate group has the same meaning as in subsection 
(B)(4)(f) of the Consolidated First Draw PPP IFR.
    (10) For purposes of calculating a borrower's maximum payroll 
costs, a borrower may multiply its average monthly payroll costs by 3.5 
only if the borrower is in the Accommodation and Food Services sector 
and has reported a NAICS code beginning with 72 as its business 
activity code on its most recent IRS income tax return.

(g) How do I submit an application for a Second Draw PPP Loan and what 
documentation must I provide to demonstrate eligibility?

    (1) The applicant must submit to the lender SBA Form 2483-SD 
(Paycheck Protection Program Second Draw Borrower Application Form) or 
the lender's equivalent form including the required certifications and 
the documentation in subsection (g)(2).
    (2) At the time an applicant submits its loan application form, it 
must submit the following unless the documentation was submitted to the 
lender for the First Draw PPP Loan (i.e., the applicant used calendar 
year 2019 figures to determine both its First Draw PPP Loan amount and 
its Second Draw PPP Loan amount, and 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):
    (i) If the applicant is not self-employed, the applicant's Form 941 
(or other tax forms containing similar information) and state quarterly 
wage unemployment insurance tax reporting forms from each quarter in 
2019 or 2020 (whichever was used to calculate payroll), as applicable, 
or equivalent payroll processor records, along with evidence of any 
retirement and employee group health, life, disability, vision and 
dental insurance contributions, must be provided. A partnership must 
also include its IRS Form 1065 K-1s.
    (ii) If the applicant is self-employed and has employees, the 
applicant's 2019 or 2020 (whichever was used to calculate loan amount) 
IRS Form 1040 Schedule C, Form 941 (or other tax forms or equivalent 
payroll processor records containing similar information) and state 
quarterly wage unemployment insurance tax reporting forms from each 
quarter in 2019 or 2020 (whichever was used to calculate loan amount), 
as applicable, or equivalent payroll processor records, along with 
evidence of any retirement and employee group health, life, disability, 
vision and dental insurance contributions, if applicable, must be 
provided. A payroll statement or similar documentation from the pay 
period that covered February 15, 2020 must be provided to establish the 
applicant was in operation on February 15, 2020.
    (iii) If the applicant is self-employed and does not have 
employees, the applicant must provide (a) its 2019 or 2020 (whichever 
was used to calculate loan amount) Form 1040 Schedule C, (b) a 2019 or 
2020 (whichever was used to calculate loan amount) IRS Form 1099-MISC 
detailing nonemployee compensation received (box 7), invoice, bank 
statement, or book of record that establishes that the applicant is 
self-employed; and (c) a 2020 invoice, bank statement, or book of 
record to establish that the applicant was in operation on or around 
February 15, 2020.
    (iv) For loans with a principal amount greater than $150,000, 
documentation sufficient to establish that the applicant experienced a 
reduction in revenue, as provided in subsection(c)(1)(iv), must be

[[Page 3721]]

provided at the time of application, which may include relevant tax 
forms, including annual tax forms, or, if relevant tax forms are not 
available, a copy of the applicant's quarterly income statements or 
bank statements.
    (v) For loans with a principal amount of $150,000 or less, the 
applicant must submit documentation sufficient to establish that the 
applicant experienced a reduction in revenue as provided in subsection 
(c)(1)(i) of this section at the time of application, on or before the 
date the borrower submits an application for loan forgiveness, or, if 
the borrower does not apply for loan forgiveness, at SBA's request. 
Such documentation may include relevant tax forms, including annual tax 
forms, or, if relevant tax forms are not available, a copy of the 
applicant's quarterly income statements or bank statements.
    (3) On the Second Draw PPP Loan borrower application, an authorized 
representative of the applicant \38\ must make the certifications 
listed in subsection (B)(12) of the Consolidated First Draw PPP IFR, 
except:
---------------------------------------------------------------------------

    \38\ A representative of the applicant can certify for the 
business as a whole if the representative is legally authorized to 
do so.
---------------------------------------------------------------------------

    (i) Instead of the certification in subsection (B)(12)(v) of the 
Consolidated First Draw PPP IFR, the applicant must certify that the 
applicant has not and will not receive another Second Draw Paycheck 
Protection Program Loan; and
    (ii) an authorized representative of the applicant must also 
certify:
    (A) The Applicant has realized a reduction in gross receipts in 
excess of 25% relative to the relevant comparison time period. For 
loans greater than $150,000, Applicant has provided documentation to 
the lender substantiating the decline in gross receipts. For loans of 
$150,000 or less, Applicant will provide documentation substantiating 
the decline in gross receipts upon or before seeking loan forgiveness 
for the Second Draw Paycheck Protection Program Loan or upon SBA 
request.
    (B) The Applicant received a First Draw Paycheck Protection Program 
Loan and, before the Second Draw Paycheck Protection Program Loan is 
disbursed, will have used the full loan amount (including any increase) 
of the First Draw Paycheck Protection Program Loan only for eligible 
expenses.
    (C) The Applicant is not a business concern or entity (a) for which 
an entity created in or organized under the laws of the People's 
Republic of China or the Special Administrative Region of Hong Kong, or 
that has significant operations in the People's Republic of China or 
the Special Administrative Region of Hong Kong, owns or holds, directly 
or indirectly, not less than 20 percent of the economic interest of the 
business concern or entity, including as equity shares or a capital or 
profit interest in a limited liability company or partnership; or (b) 
that retains, as a member of the board of directors of the business 
concern, a person who is a resident of the People's Republic of China.
    (D) The Applicant is not required to submit a registration 
statement under section 2 of the Foreign Agents Registration Act of 
1938 (22 U.S.C. 612).
    (E) The Applicant is not a business concern or entity primarily 
engaged in political 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.
    (4) A lender must submit SBA Form 2484-SD (Paycheck Protection 
Program Lender's Application--Second Draw Loan Guaranty) electronically 
in accordance with program requirements and maintain the forms and 
supporting documentation in its files.

(h) What do lenders need to know and do?

    (1) A lender approved to make First Draw PPP Loans may make Second 
Draw PPP Loans under the same terms and conditions applicable to First 
Draw PPP Loans, including all requirements under sections (C) and (D) 
of the Consolidated First Draw PPP IFR, except as otherwise provided in 
this section.
    (2) What do lenders have to do in terms of loan underwriting?
    (i) Each lender shall:
    (A) Confirm receipt of borrower certifications contained in 
Paycheck Protection Program Second Draw Borrower Application Form (SBA 
Form 2483-SD) or lender's equivalent;
    (B) Confirm receipt of information demonstrating that a borrower 
was either an eligible self-employed individual, independent 
contractor, or sole proprietorship with no employees or had employees 
for whom the borrower paid salaries and payroll taxes on or around 
February 15, 2020;
    (C) Confirm the dollar amount of average monthly payroll costs for 
2019 or 2020 (whichever was used to calculate loan amount) by reviewing 
the payroll documentation submitted with the borrower's application;
    (D) For a Second Draw PPP Loan greater than $150,000 or a loan of 
$150,000 or less where the borrower provides documentation of revenue 
reduction, confirm the dollar amount and percentage of the borrower's 
revenue reduction by performing a good faith review, in a reasonable 
time, of the borrower's calculations and supporting documents 
concerning the borrower's revenue reduction. For a loan of $150,000 or 
less where the borrower does not provide documentation of revenue 
reduction with its application, the lender shall perform this review 
when the borrower provides such documentation. If the lender identifies 
errors in the borrower's calculation or material lack of substantiation 
in the borrower's supporting documents, the lender should work with the 
borrower to remedy the issue.
    (E) Follow applicable BSA requirements (listed in subsection 
(C)(3)(d) of the Consolidated First Draw PPP IFR); and
    (ii) Each lender's underwriting obligation under the Second Draw 
PPP is limited to the items above and reviewing the ``Paycheck 
Protection Program Second Draw Borrower Application Form'' (SBA Form 
2483-SD) or lender's equivalent form.
    (iii) A lender may rely on any certification or documentation 
submitted by an applicant for a PPP loan or an eligible recipient or 
eligible entity that (A) is submitted pursuant to all applicable 
statutory requirements, regulations, and guidance related to a PPP 
loan, including under sections 7(a)(36) or (37) of the Small Business 
Act (15 U.S.C. 636(a)(36) and (37)); and (B) attests that the 
applicant, eligible recipient, or eligible entity, as applicable, has 
accurately provided the certification or documentation to the lender in 
accordance with the statutory requirements, regulations, and guidance 
related to PPP loans. With respect to a lender that relies on such a 
certification or documentation related to a Second Draw PPP Loan, an 
enforcement action may not be taken against the lender, and the lender 
shall not be subject to any penalties relating to loan origination or 
forgiveness of the Second Draw PPP Loan, if--(A) the lender acts in 
good faith relating to loan origination or forgiveness of the Second 
Draw PPP Loan based on that reliance; and (B) all other relevant 
Federal, State, local, and other statutory and regulatory requirements 
applicable to the lender are satisfied with respect to the Second Draw 
PPP Loan.
    (3) SBA will pay lenders fees for processing Second Draw PPP Loans 
in the following amounts:

[[Page 3722]]

    (i) for a Second Draw PPP Loan of up to (and including) $50,000, in 
an amount equal to the lesser of:
    (A) 50 percent of the balance of the financing outstanding at the 
time of disbursement of the loan; or
    (B) $2,500; and
    (ii) for a Second Draw PPP Loan of more than $50,000, in an amount 
that is:
    (A) 5 percent of the balance of the financing outstanding at the 
time of disbursement of the loan for a loan up to (and including) 
$350,000; and
    (B) 3 percent of the balance of the financing outstanding at the 
time of disbursement of the loan for a loan above $350,000.

(i) Will an applicant's Second Draw PPP Loan application be affected if 
there are unresolved issues regarding the applicant's First Draw PPP 
Loan?

    (1) If a First Draw PPP Loan is under review pursuant to PPP rules 
and/or information in SBA's possession indicates that the borrower may 
have been ineligible for the First Draw PPP Loan it received or for the 
loan amount received by the borrower, the lender will receive 
notification from SBA when the lender submits an application for 
guaranty of a Second Draw PPP Loan (``unresolved borrower'').
    (2) If the lender receives notification that the Applicant for a 
Second Draw PPP Loan is an unresolved borrower, the lender will not 
receive an SBA loan number. SBA will resolve the issue related to the 
unresolved borrower expeditiously and will notify the lender of the 
process to obtain an SBA loan number for the Second Draw PPP Loan, if 
appropriate.

(j) Are Second Draw PPP Loans eligible for loan forgiveness?

    Second Draw PPP Loans are eligible for loan forgiveness on the same 
terms and conditions as First Draw PPP Loans, except that Second Draw 
PPP Loan borrowers with a principal amount of $150,000 or less are 
required to provide documentation of revenue reduction if such 
documentation was not provided at the time of the loan application as 
specified in subsections (g)(2)(iv) and (v) of this section.

V. Additional Information

    SBA may provide further guidance, if needed, through SBA notices 
and a program guide which will be posted on SBA's website at 
www.sba.gov.
    Questions on the Paycheck Protection Program 7(a) Loans (First Draw 
PPP Loans and Second Draw PPP Loans) may be directed to the Lender 
Relations Specialist in the local SBA Field Office. The local SBA Field 
Office may be found at https://www.sba.gov/tools/local-assistance/districtoffices.

Compliance With Executive Orders 12866, 12988, 13132, 13563, and 13771, 
the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Orders 12866, 13563, and 13771
    This interim final rule is economically significant for the 
purposes of Executive Orders 12866 and 13563, and the Office of 
Management and Budget's Office of Information and Regulatory Affairs 
(OIRA) had determined that this is a major rule under the Congressional 
Review Act (5 U.S.C. 804(2)). SBA, however, is proceeding under the 
emergency provision at Executive Order 12866 section 6(a)(3)(D) based 
on the need to move expeditiously to mitigate the current economic 
conditions arising from the COVID-19 emergency. This rule's designation 
under Executive Order 13771 will be informed by public comment.
    This rule is necessary to implement the Economic Aid Act in order 
to provide economic relief to small businesses nationwide adversely 
impacted under the COVID-19 Emergency Declaration. We anticipate that 
this rule will result in substantial benefits to small businesses, 
their employees, and the communities they serve. However, we lack data 
to estimate the effects of this rule.
    The Administrator of OIRA has determined that this is a major rule 
for purposes of the Congressional Review Act (5 U.S.C. 801 et seq.) 
(CRA). Under section 801(3) of the CRA, a major rule takes effect 60 
days after the rule is published in the Federal Register.
    Notwithstanding this requirement, section 808(2) of the CRA allows 
agencies to dispense with the requirements of section 801 when the 
agency for good cause finds that such procedure would be impracticable, 
unnecessary, or contrary to the public interest and the rule shall take 
effect at such time as the agency promulgating the rule determines. 
Pursuant to section 808(2) of the CRA, SBA finds, for good cause, that 
a 60-day delay in the effective date is unnecessary and contrary to the 
public interest.
    As discussed elsewhere in this interim final rule, the last day to 
apply for and receive a PPP loan is March 31, 2021. Given the short 
duration of this program, and the urgent need to issue loans quickly, 
the Administrator in consultation with the Secretary has determined 
that it is impractical and not in the public interest to provide a 
delayed effective date. An immediate effective date will give small 
businesses the maximum amount of time to apply for loans and lenders 
the maximum amount of time to process applications before the program 
ends.
Executive Order 12988
    SBA has drafted this rule, to the extent practicable, in accordance 
with the standards set forth in section 3(a) and 3(b)(2) of Executive 
Order 12988, to minimize litigation, eliminate ambiguity, and reduce 
burden. The rule has no preemptive or retroactive effect.
Executive Order 13132
    SBA has determined that this rule will not have substantial direct 
effects on the States, on the relationship between the National 
Government and the States, or on the distribution of power and 
responsibilities among the various layers of government. Therefore, SBA 
has determined that this rule has no federalism implications warranting 
preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Chapter 35
    SBA has determined that this rule will impose new recordkeeping or 
reporting requirements under the Paperwork Reduction Act (``PRA''). 
This information collection (IC) consists of SBA Form 2483-SD (Paycheck 
Protection Program Second Draw Application Form) and SBA Form 2484-SD 
(Paycheck Protection Program Lender's Application--Second Draw Loan 
Guaranty. SBA has requested emergency approval for the IC required to 
implement the Second Draw PPP Program described above.
Regulatory Flexibility Act (RFA)
    The Regulatory Flexibility Act (RFA) generally requires that when 
an agency issues a proposed rule, or a final rule pursuant to section 
553(b) of the APA or another law, the agency must prepare a regulatory 
flexibility analysis that meets the requirements of the RFA and publish 
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically, 
the RFA normally requires agencies to describe the impact of a 
rulemaking on small entities by providing a regulatory impact analysis. 
Such analysis must address the consideration of regulatory options that 
would lessen the economic effect of the rule on small entities. The RFA 
defines a ``small entity'' as (1) a proprietary firm meeting the size 
standards of the Small Business Administration (SBA); (2) a nonprofit 
organization that is not dominant in its field; or (3) a small 
government

[[Page 3723]]

jurisdiction with a population of less than 50,000. 5 U.S.C. 601(3)-
(6). Except for small government jurisdictions with a population of 
less than 50,000, neither State nor local governments are ``small 
entities.''
    The requirement to conduct a regulatory impact analysis does not 
apply if the head of the agency ``certifies that the rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities.'' 5 U.S.C. 605(b). The agency must, however, publish 
the certification in the Federal Register at the time of publication of 
the rule, ``along with a statement providing the factual basis for such 
certification.'' If the agency head has not waived the requirements for 
a regulatory flexibility analysis in accordance with the RFA's waiver 
provision, and no other RFA exception applies, the agency must prepare 
the regulatory flexibility analysis and publish it in the Federal 
Register at the time of promulgation or, if the rule is promulgated in 
response to an emergency that makes timely compliance impracticable, 
within 180 days of publication of the final rule. 5 U.S.C. 604(a), 
608(b).
    Rules that are exempt from notice and comment are also exempt from 
the RFA requirements, including conducting a regulatory flexibility 
analysis, when among other things the agency for good cause finds that 
notice and public procedure are impracticable, unnecessary, or contrary 
to the public interest. Small Business Administration's Office of 
Advocacy guide: How to Comply with the Regulatory Flexibility Ac. Ch.1. 
p.9. Since this rule is exempt from notice and comment, SBA is not 
required to conduct a regulatory flexibility analysis.

    Authority: 15 U.S.C. 636(a)(36); Coronavirus Aid, Relief, and 
Economic Security Act, Pub. L. 116-136, section 1114; and Economic 
Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, Pub. 
L. 116-260, section 303.

Jovita Carranza,
Administrator.
[FR Doc. 2021-00452 Filed 1-12-21; 4:15 pm]
BILLING CODE 8026-03-P


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