Paycheck Protection Program Loans and the December 2020 Stimulus; Should Your Business Apply?

The Paycheck Protection Program (PPP) was created back in March 2020 through the CARES Act to provide forgivable loans to small businesses impacted by the COVID-19 pandemic. The time to apply for the initial PPP loan (referred to as a First Draw PPP Loan) expired in August 2020.

In the December 2020 stimulus bill, the federal government made changes to the PPP and authorized a second round of PPP loans (called a Second Draw PPP Loan). The changes give businesses extra flexibility in how to spend the money as well as making the expenses tax deductible. Also, the second round of PPP loans target hard-hit businesses.

What is new with the latest PPP loans?

The December 2020 Second Draw PPP Loan still requires that 60% of the PPP loan be allocated to payroll expenses (including all costs for W-2 employees) in order for the borrower to achieve full forgiveness. The remaining 40% available covers other approved non-payroll expenses.

However, there were several changes with the latest Second Draw PPP Loans. Some of those changes include:

  • Non-payroll expenses have been expanded to include personal protective equipment, COVID-19 prevention equipment, property damage due to civil unrest, software, accounting and human resources, and cloud services, in addition to prior covered expenses such as rent, utilities and mortgage expenses.
  • Expenses paid for by PPP loan funds are now tax deductible. Originally, PPP borrowers were not taxed on the forgiven portion of their PPP loans, but they could not deduct from their taxes the business expenses paid for by the PPP loan. Congress has decided to amend this and make those business expenses deductible for PPP borrowers.
  • The December 2020 stimulus bill authorized higher loan amounts for some hard-hit businesses. According to the SBA website, for borrowers in the Accommodation and Food Service industry (use NAICS 72 to confirm), the maximum loan amount for a Second Draw PPP Loan is 3.5x average monthly 2019 or 2020 payroll costs, up to $2 million.

What qualifies a business for a Second Draw PPP loan?

If a business already received a PPP loan, it must meet the following criteria to qualify for a second loan:

  • The business (which includes corporations, LLCs, sole proprietorships, self-employed and independent contractors) must have existed prior to February 15, 2020;
  • The business must employ 300 or fewer employees;
  • The business must have completely spent its first PPP loan before applying for a second PPP loan.
  • The business must demonstrate that its gross receipts for any quarter in 2020 had declined by at least 25% from the corresponding quarter in 2019.

If the business can meet all of these requirements, it will be eligible for a Second Draw PPP Loan. The amount of the second loan is calculated the same way as the amount for the first PPP loan. The only difference is now the PPP loan is capped at $2 million.

How can a business decide if they should apply for a first-time or second PPP loan?

Applications for both loans can be found on the SBA website, where you can review the questions in advance.

Second Draw PPP Loan application (available January 13, 2021 - March 31, 2021)

First Draw PPP Loan application (available January 11, 2021 – March 31, 2021)

If you have questions about the latest PPP loan, contact the business lawyers at Murphy Desmond S.C. We are on top of federal, state and local COVID relief loans and grants for businesses in Wisconsin, and we are available to assist you. Murphy Desmond has business lawyers in Madison, Janesville, Appleton, and Dodgeville, and serve businesses throughout Wisconsin. Please email us at or call our firm at 608.257.7181.

Updated February 10, 2021