After much deliberation, on December 21, 2020, Congress finally agreed to approve a $900 billion COVID-19 relief package as part of the Consolidated Appropriations Act, 2021. Included in that amount is $284 billion for a second round of the Paycheck Protection Program (PPP).
While based on similar principles as the first round of PPP funding under the CARES Act, the second round of PPP (the “Second Draw”) has some key differences that are summarized below. The SBA has issued rules for the second round.
SBA, in consultation with the U.S. Treasury Department, opened the Paycheck Protection Program loan portal today, Monday, January 11, 2021 at 9 am ET. When the PPP loan portal system opens, it will initially accept First Draw PPP loan applications from participating CFIs, which include Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), Certified Development Companies (CDCs), and Microloan Intermediaries.
Here’s what business owners need to know about this second round:
Can a business apply for a second loan if it received one in the first round?
Yes, businesses can receive a second loan — called a second draw — if they have spent the entire amount of the first loan on or before the date the second loan is disbursed, and they still need help. However, it is unclear if borrowers who returned unused portions of their first loans are eligible for a second loan.
How Do I Apply?
You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.
If you wish to begin preparing your application, you can download the following PPP borrower application forms to see the information that will be requested from you when you apply with a lender:
- Paycheck Protection Program First Draw Borrower Application Form (revised 01-08-21)
- Paycheck Protection Program Second Draw Borrower Application Form (01-08-21)
When can borrowers apply?
Community financial institutions will be able to make first draw loans (loans to businesses that have not previously received a PPP loan) starting today, Monday, Jan. 11, and second draw loans (loans to businesses that have previously received one) starting on Wednesday, Jan. 13. The program will open to all participating lenders shortly thereafter.
What is the deadline for applying?
The program will end on March 31, 2021, or earlier if the money runs out like it initially did during the program’s first round. So businesses should apply as soon as possible.
What businesses are eligible?
For businesses seeking their first PPP loan, the requirements are generally the same as they were in the first round.
First draw loans are generally limited to businesses with a maximum of 500 employees (including domestic and foreign affiliates). Certain types of businesses are excluded from the second round, including publicly traded companies, businesses primarily engaged in political or lobbying activities, and China-affiliated businesses.
Businesses seeking a second draw loan can employ no more than 300 people (500 employees for restaurants and hotels) and must demonstrate at least a 25% reduction in gross revenue between one comparable quarter in 2019 and 2020. Alternatively, a borrower may submit annual tax forms showing a reduction in annual revenue of 25% or greater in 2020 compared to 2019.
How much can a business borrow?
Loans are capped at 2.5 times an applicant’s average monthly payroll costs in the one year prior to the loan being issued (3.5 times for restaurants and other eligible hospitality businesses).
Loans are limited to a maximum of $10 million for first time PPP borrowers and $2 million for second time borrowers.
What can the money be used for?
The loan proceeds can be used to cover a business’s payroll and certain other expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures.
What about loan forgiveness?
Second-draw loan funds can be forgiven if they are used on covered costs within 8 to 24 weeks of receiving your loan. The exact time frame is determined when you apply for your loan. At least 60% of the total second-draw loan must be used on payroll expenses to qualify for full loan forgiveness. Up to 40% can be used on other covered expenses detailed above.
Forgiven PPP loans are not considered income for federal tax purposes.
What is the covered period of the loans?
In the first round, businesses had to pick either eight or 24 weeks. But the second round provides more flexibility, allowing businesses to select any period between eight and 24 weeks.
Will the loans require collateral or personal guarantees?
No, the loans will be 100% guaranteed by the U.S. Small Business Administration and will require neither collateral nor personal guarantees.
Supplemental Materials from SBA:
- Top-line Overview of PPP First Draw Loans
- Top-line Overview of PPP Second Draw Loans
- Frequently Asked Questions for Lenders and Borrowers (12-09-20)
- How to Calculate Loan Amounts (06-26-20)
- Frequently Asked Questions for Faith-Based Organizations Participating in the Paycheck Protection Program and Economic Injury Disaster Loan Program
- PPP Myth vs. Fact