Congress Continues PPP Loans, Allows Second Draw Loans For Qualifying Businesses

BY Alex Ayers
12/23/2020 - HVAC Government Affairs

As part of the Consolidated Appropriations Act of 2021, Congress included $900 billion in dedicated relief funding and provisions to help individuals, small businesses, schools, and healthcare workers. Chief among the provisions was inclusion of $284 billion in new funding for the Paycheck Protection Program including authorization for businesses to take second draw loans. SBA expects to allow banks to accept new or second draw applications by the first of the year. For borrowers under $150,000, Congress reduced the documentation required for forgiveness, however an application is still required. Also important in the legislation was a correction to allow businesses to deduct the value of expenses paid with PPP funds, this provision was necessary to ensure the tax-free intent of PPP loans after an IRS ruling earlier this year would have nixed the deduction for businesses.

For businesses seeking second draw loans, additional requirements have been put in place. Businesses qualify if they:

  • Employ 300 or fewer workers, instead of the current 500-employee threshold;
  • Demonstrate that they had at least a 25% reduction in gross revenue during a quarter in 2020 compared with the same period in 2019, with some exceptions; and
  • Exhaust their first loan before receiving a second one.

This means most HARDI members can qualify if they can show a 25% drop in revenue from any 2020 quarter compared to that same quarter in 2019.

In addition to the new second draw loans, Congress also passed changes to the existing program including adding additional eligible expenses for businesses that were unable to expend their full loan amounts on forgivable expenses. New eligible expenses include:

  • Payments for software or cloud computing services that facilitate operations, product delivery, payroll expenses, and other functions.
  • Costs related to property damage, vandalism, or looting due to public disturbances in 2020, if the damage wasn’t covered by insurance.
  • Payments made to suppliers of essential goods under contracts and purchase orders in effect before a PPP loan was issued.
  • Purchases of personal protective equipment.
  • Adaptations such as drive-through windows, ventilation systems, sneeze guards, and screening capabilities to comply with social distancing, sanitation, and other requirements related to Covid-19.

For businesses that needed substantial changes to meet COVID restrictions, these new eligible expenses can help offset those costs.

Employee Retention Tax Credit

The CARES Act created both the Paycheck Protection Program and the Employee Retention Tax Credit, however made them exclusive of one another. This legislation allows businesses that took PPP loans to also utilize the Employee Retention Tax Credit (ERTC), however any PPP funds cannot be used to qualify for ERTC.

Under the expanded ERTC, qualifying businesses can reduce their employment tax payments to cover 70% of an employee’s quarterly wages, up to $10,000. To qualify a business must have fewer than 500 employees and will be required to show an annual drop in gross receipts of 20% but does allow a safe harbor using the previous quarter’s earnings.


We will continue to update you as we receive more information. Please reach out to Alex Ayers with any questions.