How to Fill Out the PPP Second Draw Application Form
The SBA offers two forgivable loan programs under the Paycheck Protection Program (PPP): the First Draw and the Second Draw.
There is some confusion about whether you can apply for the First Draw or the Second Draw. In general, if you received a PPP forgivable loan in 2020, you are eligible for the Second Draw, not the First Draw.
You are eligible for the First Draw if you did not receive a PPP loan in 2020.
You are also eligible for the First Draw if you got money from the PPP in 2020 but did not receive forgiveness by December 27, 2020 and returned some or all of this money, or didn’t accept the full amount you were eligible for.
If you did receive a PPP loan in 2020, you are not eligible for the First Draw (with the above exception). Instead, you are eligible for the Second Draw as long as you have spent the full amount of your 2020 PPP loan by the time you receive the Second Draw funds.
In addition, you must have been in business by February 15, 2020 to be eligible for the First or Second Draw.
Here’s an instructional video to help you.
[video width="1680" height="986" mp4="http://tomcopelandblog.com/wp-content/uploads/2021/01/How-to-Fill-Out-the-PPP-Second-Draw.mp4"][/video]
Note: In the video I explain how to fill out the section in the application form dealing with the 25% reduction in your gross income. Although you are not required to fill out this section before applying, I urge you to do so because you will have to show documentation of your numbers before you will be able to receive forgiveness.
Here is a copy of the power point slides.
Here is the loan application and instructions for the Second Draw.
To apply for the PPP money, contact your local bank or apply online using one of a number of online companies: PayPal, OnDeck, Kabbage, Biz2Credit, Intuit.
Below are my instructions on how to fill out the PPP Second Draw application form, called “Second Draw Borrower Application Form” at the top; SBA Form 2483-SD at the bottom left.
Check One: Check “Self-Employed Individual” if you are not incorporated. If you are established as a different entity, check the appropriate box.
DBA or Tradename: A DBA (Doing Business As) is a name you would get if you have registered your business name with your secretary of state’s office. If you have one, enter it. If you don’t, leave it blank.
Year of Establishment: Enter the year you started caring for children.
Business Legal Name: If you have one, enter it here. If you don’t, enter your own name.
NAICS Code: Enter 624410
Business Address: Enter the address where you care for children.
Business TIN: Enter your Employer Identification Number (EIN), or your Social Security number if you don’t have an EIN.
Business Phone: Enter your phone number.
Primary Contact: Enter your own name.
Email Address: Enter your email address.
Average Monthly Payroll: You have a choice to either use your 2019 or 2020 average monthly payroll. Use whichever one is larger. If you haven’t filed your 2020 taxes yet, fill out your 2020 Schedule C. Your annual profit is your Schedule C, line 31. Divide this by twelve to get your average monthly profit. So, if line 31 was $48,000, divide this by twelve to get your average monthly profit of $4,000. Enter $4,000 here.
If you have employees, add their payroll amount from Schedule C, line 26 to your annual profit. For example, if you paid your employee(s) $10,000, add $10,000 to $48,000 to get $58,000. Then divide this by twelve ($58,000 divided by 12 = $4,833). Enter $4,833 here. Note: Volunteers or independent contractors are not employees. If you paid a helper or family members but did not pay payroll taxes or file payroll tax forms, do not include them here as employees.
Important Note: If you are not sure how to calculate your average monthly payroll or payroll costs for employees, do your best to estimate them and put a number down on the form. Your lender will go through these numbers with you and you can modify them later.
X 2.5: Multiply the amount in the previous box by 2.5. So, in the first example (above) you would enter $4,000 x 2.5 = $10,000. In the second example, you would enter $4,833 x. 2.5 = $12,082. This is the maximum amount you can apply for the PPP money.
Number of Employees: Enter 1 for yourself, plus any other employees you had. Do not enter volunteers or independent contractors. Do not enter family members unless you treated them as employees and paid the proper payroll taxes and filed the proper payroll tax forms.
Purpose of the loan: You can check one or more of the boxes here. You can spend all of the PPP money on payroll for yourself, so you could check just the “Payroll Costs” box. I would also recommend checking off at least the other following boxes: “Rent/Mortgage Interest,” “Utilities,” “Covered Operations Expenditures,” and “Covered Supplier Costs.” This will protect you in case you make a mistake in claiming payroll expenses. Checking more than one box does not mean you have to spend money on any one box.
PPP First Draw SBA Loan Number: Look at the paperwork you received when you received your PPP loan in 2020 to get your loan number. If you can’t find it, contact the lender where you applied for the loan.
Reduction in Gross Receipts of at Least 25%:
This is where it gets complicated! To get money from the Second Draw, you need to demonstrate that you had at least a 25% reduction in gross income in any quarter in 2020 compared to 2019. Your gross income is shown on your tax form, IRS Schedule C, line 7. This represents your income before any business expenses. Your gross income includes parent payments, subsidy payments, Food Program reimbursements and any state grants you received during the COVID-19 pandemic. It does not include any previous PPP forgivable loans or Economic Injury Disaster (EIDL) “loans” or “advances” you might have received. Note: Gross income does not include federal or state unemployment benefits. This income is personal, not business income.
You can compare your gross income for all of 2019 with 2020, or you can look at any comparable quarter from the two years. For example, if your gross income in 2019 was $60,000, your gross income for 2020 must be less than $45,000 ($60,000 x 75%) to show a 25% reduction. If you haven’t filed your 2020 taxes yet, you can fill out your 2020 Schedule C on your own to do this comparison. To fill out your 2020 Schedule C you will also have to fill out IRS Form 8829 Expenses for Business Use of Your Home that requires you to calculate your Time-Space Percentage.
If you want to compare quarters, you can pick any quarter in 2019 and multiply your gross income for that quarter by 75%. If your gross income is lower by this amount for the corresponding quarter in 2020, you are eligible. The first quarter of the year is January – March. The second quarter is April – June. The third quarter is July – September. The fourth quarter is October – December.
Let’s look at an example: Let’s say you want to compare your third quarter for 2020 with 2019. Enter “3Q2020” in the box that says “2020 Quarter.” Enter “3Q2019” in the box that says “Reference Quarter.” Then enter your gross income in the two boxes that say “Gross Receipts” under each quarter. So, let’s say your gross income for the third quarter of 2020 was $10,000. Enter “10,000” in the first “Gross Receipts” box. Let’s say your gross income for the third quarter of 2019 was $14,000. Enter “$14,000” in the second “Gross Receipts” box. Since $10,000 is at least 25% less than $14,000, you qualify for the Second Draw.
Note: If you are comparing all of 2020 with 2019, enter “2020” in the “2020 Quarter” box and “2019” in the “2019 Quarter” box.
The easiest way to determine if your gross income for any one quarter in 2020 is less than the corresponding quarter for 2019 is to multiply your gross income in a 2019 quarter by 75%. Your gross income for the corresponding quarter for 2020 must be less than this result. So, in our above example: $14,000 x 75% = $10,500. Since the gross income in 2020 was less than $10,500, you qualify. If the 2020 number was $10,500 or more, you wouldn’t qualify for that quarter, but you could try another quarter to see if you would qualify.
If you were not in business for all of 2019, you can compare quarters for the quarters you were in business. So, if your business began in May 2019, you can compare the third or fourth quarters of 2019 with the third or fourth quarters of 2020. If your business began in 2020, but before February 15, 2020, compare your gross income from the first quarter of 2020 with the second, third, or fourth quarters of 2020.
Remember: When comparing quarters, you can pick the one quarter that makes your eligible, even if the other quarters would make you ineligible. In other words, if you received large grant from your state in the second quarter of 2020, you may not be eligible for that quarter, but you can choose another quarter where you would be eligible.
How do you determine your gross income for any quarter? Look at your business records indicating how much money you received for those months. This may appear on your bank deposit records, Redleaf Calendar Keeper notations, the Schedule C Worksheet Report if you used the online software KidKare, or any other method you used to record your income.
If you hate doing math, or need help in seeing if you qualify by showing at least a 25% reduction in your gross income, here’s a calculator that will make it easier. Click on the Stimulus Navigator “Worksheet.”
Note: The instructions to the Second Draw application form says that you don't need to fill out the boxes dealing with "Reduction in Gross Receipts of at Least 25%" if you applying for less than $150,000. However, before you breath a sigh of relief, you should know that you will need to show this information when you apply for forgiveness. So, I believe it makes sense to complete this section when applying so you will know that you do qualify. It's better to find out you didn't qualify before you receive the money and have to pay it back!
Applicant Ownership – Enter your name, title (“owner”), and 100% for Ownership %. Then enter your EIN or Social Security number. (Enter the same number you entered earlier on this form.) Enter your mailing address.
Check the appropriate boxes for the rest of the first page of the form. Enter “No” for the first three questions. If you enter “No” for questions 4 or 5, be sure to enter your initials in the space provided to confirm your answer. Answer “Yes” for question 6 and “No” for questions 7 and 8.
The second and third pages of the application asks you a series of questions to verify that you are eligible for this forgivable loan and agree to follow the rules. Put your initials next to all the paragraphs at the bottom of page two and the top of page three. Sign and print your name on page 3. Put the current date and enter “Owner” under “Title.”
Comments
You must spend at least 60% of the PPP money on payroll. This includes payroll for yourself. You can spend 100% on payroll for yourself if you want. To pay yourself payroll, write a check to yourself or transfer money from one bank account to another.
If you use the PPP money on expenses other than payroll, you can still deduct these expenses on your tax return.
If you use the PPP money for any other purpose than is listed on the application form, you will not be able to get forgiveness and that money will turn into a 1% loan that must be paid back in five years. For example, if you use the money to build a deck, this is not an allowable use of the money. However, if you pay yourself payroll, you can then use your payroll money to buy the deck.
Although filling out this form may seem complicated, it is still worthwhile applying. I encourage everyone to apply.
You must spend the PPP money within eight and twenty-four weeks. After that you can apply for forgiveness. I will be writing an article about how to apply for forgiveness shortly.
How does receiving the PPP money affect your ability to claim and receive unemployment benefits? This is a difficult question to answer because each state has its own rules about whether and how to treat PPP money as income. Contact your state unemployment office to get an answer to this question.
I have post an article and video about how to fill out the First Draw of the PPP.
This document was funded by the Child Care Communications Management Center, which is funded by the Office of Child Care (OCC), Administration for Children and Families (ACF), U.S. Department of Health and Human Services (HHS), and was developed in partnership with the National Center on Early Childhood Quality Assurance, which is funded by OCC, the Office of Head Start, ACF, HHS. This resource may be duplicated for noncommercial uses without permission.
Tom Copeland – www.tomcopelandblog.com
Image credit: Small Business Administration
