SBA Issues Guidance on Second Draw Paycheck Protection Program Loans; Reductions in Gross Receipts

The SBA issued 18 pages of guidance in the form of Frequently Asked Questions (FAQs) to help companies assess whether they qualify to borrow funds under the Paycheck Protection Program and the types of documentation they would need to submit with their application, specifically the required 25% decline in gross receipts. Below is a high-level summary of the key points included in the FAQs.


Gross receipts are defined as “all revenue in whatever form received or accrued (in accordance with the entity’s accounting method, i.e., accrual or cash) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances but excluding net capital gains and losses.” It is specifically noted that gross receipts exclude:

  • sales tax collections
  • proceeds between the company and its affiliates, and
  • amounts collected for another by certain types of agency relationships.


Gross receipts are defined as “gross amount received by the organization during its annual accounting period from all sources without reduction for any costs or expenses including, for example, cost of goods or assets sold, cost of operations, or expenses of earning, raising, or collecting such amounts. Thus “gross receipts” includes, but is not limited to:

  • the gross amount received as contributions, gifts, grants and similar amounts without reduction for the expenses of raising and collecting such amounts,
  • the gross amount received as dues or assessments from members or affiliated organizations without reduction for expenses attributable to the receipt of such amounts,
  • gross sales or receipts from business activities (including business activities unrelated to the purpose for which the organization qualifies for an exemption, the net income or loss from which may be required to be reported on Form 990-T),
  • the gross amount received from the sale of assets without reduction for cost or other basis and expenses of sale, and
  • the gross amount received as investment income, such as interest, dividends, rents, and royalties.”

Income that your company has reflected as forgiveness of indebtedness from first-round PPP loans or from EIDL advances is specifically excluded from gross receipts; however, any other CARES Act grants that the company might have received would be included.

Generally, your company would need to demonstrate a 25% or more reduction in gross receipts in any 2020 calendar quarter compared to the same calendar quarter in 2019. If your business was not in business in parts of 2019, special rules apply. If you are unable to segregate gross receipts by quarter, you can use the full year 2020 picture compared to 2019.

To demonstrate the reduction in gross receipts, a company will need to provide copies of quarterly financial statements (applicant would need to sign and date the first page and initial all other pages, attesting to their accuracy) OR bank statements and specifically identify which line items would constitute gross receipts. Additionally, bank statements showing deposits from the relevant quarters would need to be included and should be tied out to the financial statements including identification of which deposits would not constitute gross receipts. For businesses electing to use the annual numbers and not quarterly numbers, they would need to provide a copy of the file 2019 tax return along with the completed 2020 forms and certify that the information presented is consistent with what will be filed with IRS.

  • For second draw PPP loans exceeding $150,000, this documentation will be required to be included with the application for the loan.
  • For second draw PPP loans of $150,000 or less, this documentation will be required to be provided at the time the borrower seeks loan forgiveness.

Additionally, this release by SBA includes examples on how different types of entities would calculate the amount they can borrow under the second draw PPP loan program.

Your BMF Advisor is available to help you work your way through this process. Please contact us for assistance as you navigate this process.


About the Authors

James E. Merklin
James E. Merklin
Partner, Assurance and Advisory


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