COVID-19 Relief Act Creates 2nd Round of PPP Loans


On Sunday, December 27, 2020, President Trump signed the COVID-19 Economic Relief Bill into law. Among the myriad provisions of the over 5,000 page bill, this legislation made certain critical changes to the original Payroll Protection Program (PPP) first established under the CARES Act and the amendatory Flexibility Act earlier this year (see here and here for our client alerts on the previous legislation) and created a 2nd round of PPP loans. Several important changes to the original PPP structure and the key elements of the new round of PPP loans are discussed below.


In addition to the numerous guidance and interpretations subsequently made by the Department of Treasury to the original CARES and Flexibility Acts, the newly-enacted legislation made several additional critical changes to the PPP structure, including:

  • Clarifies that gross income does not include forgiveness of certain loans, emergency EIDL grants, and certain loan repayment assistance under the CARES Act.
  • Provides that deductions are allowed for otherwise deductible expenses paid with the proceeds of these loans, grants and assistance.  This is a significant reversal of the position taken by the Treasury Department and the IRS earlier in 2020.  They had ruled that Section 265 of the tax code prevented deduction of those expenses to the extent paid with the proceeds of forgiven loans.
  • Makes the following additional expenses eligible uses of PPP funds eligible for forgiveness:
    • payments for software, cloud computing, and other HR and accounting needs;
    • costs related to property damage due to uninsured losses during 2020 from public disturbances;
    • expenditures to a supplier made before obtaining the PPP loan which are essential to the recipient’s operations at the time the expenditure was made; and
    • costs of PPE and adaptive investments to help a PPP borrower comply with federal or state health and safety guidelines related to COVID-19 from the period March 1, 2020, through the end of the national emergency declaration
  • Allows borrowers of existing PPP loans to use the expanded forgiveness expenses so long as a borrower has not already received loan forgiveness
  • Allows borrowers to select a covered period between 8 and 24 weeks after receipt of PPP loan proceeds
  • Establishes a simplified application process for PPP loans under $150,000 (including self-certification for forgiveness)
  • Clarifies that other employer-provided group insurance benefits (including group life, disability, vision and dental insurance) are all eligible payroll costs


The new legislation also created a second round of PPP loans available for eligible borrowers, referred to as “PPP second draw” loans. The following are key components to this new round of PPP loans:

  • Maximum loan amount of $2 million
  • Eligible entities must be businesses, certain non-profit organizations, self-employed individuals, sole proprietors, independent contractors, and certain other enumerated entities, and must:
    • employ no more than 300 employees (applying the same affiliate rules utilized for the initial PPP round);
    • have used (or will use) the full amount of the first PPP; and
    • demonstrate at least 25% reduction in gross receipts in the 1st, 2nd, or 3rd quarter of 2020 relative to the same quarter in 2019 (or in the 4th quarter of 2020 for applications submitted after January 1, 2021).
  • Borrowers may receive PPP second draw loans up to 2.5X the average monthly payroll costs in the one year before the loan or calendar year (or 3.5X of such costs for businesses in the accommodation and food services industry)
  • Borrowers with multiple locations may employ not more than 300 employees per physical location
  • Limited to no more than one PPP second draw loan
  • The same PPP forgiveness rules, including 60/40 cost allocation and safe harbors for restoring FTE and salaries and wages (see prior client alert here) apply to forgiveness of PPP second draw loans
  • A business is ineligible for PPP second draw loans if, among other reasons, such business is at least 20% owned, directly or indirectly, by a Chinese or Hong Kong entity or by an entity that has “significant operations” in China or Hong Kong, or if such business retains, as a board member, a person who is a resident of China.

The Butzel Long CARES Act Specialty Team will continue to follow any guidance and/or interpretation of this new legislation. Butzel attorneys are ready to help with questions about the original PPP loans, PPP second round loans, and loan forgiveness in light of this new legislation.

Tom Kabel

Rick Berg

Bernie Fuhs

Jonathan Kirkland

Justin Klimko

Brett Miller

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