Preparing for your Second Draw Paycheck Protection Program Loan Application

Keeping our businesses running and our employees paid during this pandemic has kept many a good small business owner awake at night for the last 9 months.  Following the Economic Aid Act signed into law on December 27th, the SBA quickly rolled out guidance for First Draw and Second Draw Paycheck Protection Program loan application requirements.  In this blog, we’re sharing what we’ve learned about applying for the Second Draw PPP Loan to help you get ready.

Here are a few steps you should take to ensure you’re ready to apply.  PPP Loan funds are limited, and time is of the essence to apply!

Step #1 – Determine Your Eligibility

You may be eligible if your business has the following.

  • Under 300 employees
  • Experienced a gross receipts revenue reduction in calendar 2020 relative to 2019 of 25% or greater for at least one quarter in 2020 corresponding to the same quarter in 2019
  • The business was operating in 2019

Other requirements concerning non-profits, veterans’ organizations, affiliates, eligibility for the First Draw PPP Loan, etc. may apply.

Step #2 – Calculate Your Revenue Reduction

To calculate whether you have sustained a 25% decrease in gross receipts in a 2020 quarter as compared to the corresponding quarter in 2019, you first must determine your gross receipts for the quarters you are comparing.

For businesses in business all of 2019 and 2020, you must show 25% decrease in gross receipts for any calendar quarter in 2020 as compared to the corresponding quarter in 2019.  If your business was not in operation in all four quarters of 2019, you may still meet the revenue reduction requirement under one of the quarterly measurements.

  • Gross Receipts Include – Gross receipts means all revenue, sales of products and services, grants, interest, dividends, rents, royalties, fees, commissions, gifts, contributions, subcontractor costs, reimbursement for purchases a contractor makes at a customer’s request, investment income, gross amount received from sale of assets, dues and assessments.
  • Gross Receipts Exclude – Returns and allowances, net capital gains and losses, taxes collected and remitted to a tax authority (sales tax), amounts collected for another by a travel agent, real estate agent, advertising agent, conference management provider, freight forwarder, or customs broker. Gross receipts do not include any forgiven First Draw or EIDL advances.
  • Quarter Comparison – Compare gross receipts for each quarter of 2019 and 2020 to determine which quarters in 2020 were decreased by 25% or more. You can use a Profit & Loss Report by quarter comparing 2019 to 2020 and then include and exclude information as needed to do your final calculation. When pulling the reports, be sure to use the accounting method you typically use for your business.

Step #3 – Determine Your Maximum Loan Amount

For Second Draw PPP Loans, you can request up to two and a half months of your average payroll.  Accommodation and Food Service businesses are eligible for three and a half months of their average payroll.

The maximum loan amount calculations vary depending on whether you’re self-employed with or without employees, a self-employed farmer or rancher, in a business partnership, an LLC, S-Corp, C-Corp, or are a non-profit organization.

Step #4 – Calculate Your Payroll Costs

Now that you’ve confirmed your gross receipts, you need to calculate your payroll costs.

  • The time period for calculating your payroll costs is either the 12-month period prior to when the Second Draw PPP Loan is made or calendar year 2019
  • Document gross wages and tips for US employees up to $100,000 per employee
  • Document employer group health, life, disability, vision, and dental insurance contributions
  • Document employer retirement contributions
  • Using the Same Lender for First Draw and Second Draw PPP Loans – If you used calendar year 2019 to determine your First Draw PPP Loan amount or used calendar year 2019 to determine your Second Draw PPP Loan amount and you’re using the same lender for both loans, no additional documentation is required.

Step #5 – Gather Documentation You Need to Apply

Once you’ve calculated your gross receipts, maximum loan amount, and payroll costs, you’re ready to gather your documentation and apply through your lender.  Here is the list of documentation you’ll need. (For the purposes of this example, we’re assuming you selected the calendar year 2019 as your 12-month period.  If you chose a 12-month period prior to your date of Second Draw application, you’ll need to gather reports for that period.)

  • Ownership information
  • Ownership breakdown information
  • Tax Identification Number
  • Date business was established
  • Documentation showing business was in operation on 2/15/2020
  • Employee count
  • First Draw SBA loan number and loan amount
  • Quarterly Financial Statements or Quarterly Bank Statements or IRS income tax filings for 2019 and 2020
  • Documentation demonstrating 25% reduction in gross receipts for loans great than $150,000 is required at time of application for Second Draw PPP Loan. For loans $150,000 or less, you can supply this at loan application or loan forgiveness application time.
  • 2019 IRS Form 941 for each quarter
  • 2019 State quarterly wage unemployment insurance tax report form from each quarter or equivalent payroll processor reports
  • Payroll statement or similar documentation from the pay period that covered February 15, 2020
  • 2019 Payroll costs and supporting reports
  • 2019 Employer contributions for group health, life, disability, vision and dental insurance, and retirement
  • 2019 Employer state and local taxes assessed for unemployment insurance from state quarterly wage reporting forms


For more information about the PPP loans and how to apply, visit the Small Business Administration.

If you need assistance with calculations and preparing the documentation required to apply for your Second Draw PPP Loan, call us at 410-893-6779.  We’re ready to help.