woman business owner wearing mask standing in doorway of her retail shop
Following new coronavirus stimulus legislation passed in December 2020, the SBA began accepting applications for second-draw PPP loans on January 13, 2021. — Getty Images/LeoPatrizi

As of 5/5/21 the PPP loan program has run out of funds and is no longer accepting applications. Some community lending institutions are still accepting applications from minority-owned and women-owned businesses and businesses in underserved communities to continue to disseminate funding earmarked for that purpose. For more on stimulus aid still available, see our main story here.

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In 2020, the federal government’s Paycheck Protection Program (PPP) provided forgivable loans to more than 5 million U.S. businesses as a way to help them make it through the coronavirus crisis. In 2021, many of those same businesses now have the opportunity to apply for a forgivable second-draw PPP loan, which can provide more short-term assistance.

Following new coronavirus stimulus legislation passed in December 2020, the Small Business Administration (SBA) began accepting applications for second-draw PPP loans on January 13, 2021. Applications for second-draw PPP loans will be open until May 31, 2021, or until the money allocated for the program runs out.

The terms and restrictions for second-draw PPP loans are not the same as for first-time PPP loans, so businesses should be well aware of the changes before applying.

Here are six things companies need to know about second-draw PPP loans.

What businesses are eligible for second-draw PPP

The second-draw PPP’s purpose is to offer financial assistance to businesses that were hit especially hard by COVID-19 disruptions. Ultimately, this means the second-draw loans are much more targeted. To qualify, companies must meet the following criteria:

  • The business must have previously received a PPP loan and used the full amount only for authorized uses.
  • The business must have fewer than 300 employees.
  • The business will need to show it had a 25% reduction in gross receipts during at least one quarter of 2020 versus the same quarter of 2019. (The SBA defines “gross receipts” as all revenue “including from the sales of products or services, interest, dividends, rent, royalties, fees, or commissions.”)

Terms of the second PPP loan

The maximum loan size for a second-draw PPP loan is $2 million, versus $10 million for a first-time PPP loan. Like other PPP loans, the interest rate for all second-draw PPP loans is set at 1%, and no personal guarantee or collateral is required. The “covered period” for the loan is between 8 and 24 weeks, and the period generally begins the day the loan funds are disbursed.

Second-draw PPP loans mature after five years. Both the government and lenders involved with PPP are not allowed to charge any fees for processing these loans.

Businesses that qualify for second-draw PPP loans should first contact whatever bank, credit union or fintech company they used to secure their first PPP loan.

Calculating the size of your second-draw PPP loan

For most businesses, the maximum loan amount businesses can apply for is 2.5 times the average monthly 2019 or 2020 payroll costs, up to $2 million. Notably, potential borrowers in the Accommodation and Food Services sector (most bars and restaurants would fall under this designation) can apply for 3.5 times the average monthly 2019 or 2020 payroll costs, up to $2 million. It’s strongly advised to work with an accountant or financial advisor when calculating your loan amount to ensure it is correct.

What funds can be used for

Businesses must spend at least 60% on payroll costs to get a second-draw PPP loan forgiven. The other 40% can be spent on the following non-payroll expenses:

  • Qualifying rent or mortgage interest payments.
  • Utility costs.
  • Operations expenses: cloud computing services, business software, human resources and related expenses.
  • Supplier costs: payments that go to suppliers who provide essential goods.
  • Worker protection expenses: expenses to employees safer during COVID-19, including personal protective equipment (PPE), drive-thru windows, sneeze guards and outside dining enclosures.
  • Property damage costs: costs related to civil unrest that occurred in 2020 that were not covered by insurance.

How to apply for second-draw PPP loans

Applications opened on January 13, 2021, and will close on March 31, 2021. Businesses that qualify for second-draw PPP loans should first contact whatever bank, credit union or fintech company they used to secure their first PPP loan. If the same lender offers second-round PPP loans, you will likely want to apply directly with them. Once the lender has processed the application, they will then send it to the SBA for approval. A sample application form can be found here.

However, not all lenders that participated in the first round of PPP are offering loans in the second round, so you may need to work with a new lender. Businesses can use the SBA’s Lender Match tool or find a bank by searching this map of eligible lenders.

Obtaining loan forgiveness

Like the first round, second-draw PPP loans are entirely forgivable if the funds are used for approved expenses between the 8-and-24-week “covered period” and fund disbursement is properly documented. To obtain forgiveness, employee and compensation levels must also be maintained during the covered period. Borrowers have 10 months after the last day of the covered period to apply for forgiveness, and if they don’t do it before then, they will have to start making payments on the loan. A sample of the forgiveness application for loans above $150,000 can be downloaded here, and a simple application for loans below $150,000 can be downloaded here. The SBA also released an “EZ” version of the forgiveness application for some borrowers with loans above $150,000.

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Published February 22, 2021