According to a recent release by the Small Business Administration (SBA), over 1.1 million Paycheck Protection Program (PPP) loans were issued in 2020, worth over $100 billion in economic relief for small businesses affected by the COVID-19 pandemic. But PPP relief doesn’t necessarily end there: Previous borrowers could be eligible for a second PPP loan in 2021.
With the recent re-opening of the PPP with an additional $284 billion in funding, a new “Second Draw” PPP loan option is now available to qualified 2020 borrowers.
“The Second Draw program is a great way for businesses that are still struggling through the pandemic to keep their employees paid and ultimately get some momentum back this year,” says Tim Jones, EVP and Credit Services Director for Umpqua Bank, which issued over 17,000 PPP loans worth over $2 billion in 2020. “I think it also shows that the federal government recognizes the need for additional aid and is committed to trying to help as many small businesses as it can.”
Below is a quick round-up of information businesses may need in determining whether to apply for a Second Draw PPP loan before March 31, 2021, the program’s deadline:
- What types of businesses are eligible to apply for a Second Draw PPP loan?
The following types of businesses are currently eligible for Second Draw PPP loans:
- Independent contractors, self-employed individuals, and sole proprietors.
- Corporations, S-Corps, LLCs, and partnerships.
- Non-profits, including 501(c)(6) organizations (a new addition to the PPP in 2021).
- Non-US entities, firms involved in lending activities, and publicly traded companies are among the types of organizations currently ineligible to receive PPP loans.
What criteria must a business meet in order to be eligible to apply for a Second Draw PPP loan?
In order to receive a Second Draw PPP loan, applicants must have:
- Already received a PPP loan in 2020.
- Either already spent the full amount of its 2020 PPP loan in accordance with program rules or will do so before applying for a Second Draw PPP loan.
- Three-hundred or fewer employees on its payroll.
- Experienced at least a 25% decline in revenue in 2020 either in any one quarter compared to that same quarter in 2019 or across the entire year compared to 2019.
- Borrowers that either returned or did not accept all or a part of an approved PPP loan in 2020 may also be eligible for a PPP loan increase.
What kind of funding may borrowers receive with a Second Draw PPP loan?
The maximum loan amount for Second Draw PPP loans is $2 million, with a maximum of $4 million per related entities (if owners have more than one operation).
The actual loan amount received is determined by the applicant’s average monthly payroll costs depending on the type of business:
- 2.5 times the average monthly payroll for most qualifying businesses, or
- 3.5 times the average monthly payroll for businesses in the Accommodation and Food Services sector.
Where should applicants apply for a Second Draw PPP loan?
Businesses should contact their previous PPP loan lender or visit the SBA’s website for information on other eligible lenders.
What documents should a business have available when it is ready to apply for a Second Draw PPP loan?
For a timely application process, applicants should be prepared to provide the following detailed information:
- Payroll documents from a payroll processor or tax filings for 2019 or the most recent twelve-month period.
- For loans over $150,000, financial statements supporting the business’s 25% revenue decline in any quarter of 2020 compared to the same quarter in 2019. For loans less than or equal to $150,000, the documentation is not required to be submitted with the application, but applicants will still be required to attest to this revenue decline and ultimately need to provide the documentation at time of loan forgiveness.
- Applicants should also thoroughly review the SBA’s Second Draw Borrower Application Form in advance to ensure they are fully prepared to provide the information needed.
“It really pays to get together all of the exact information you’ll need as part of a Second Draw loan application,” says Jones. “Doing so will certainly allow your loan to be processed more quickly by your financial institution and allow them to get your approved funds to you faster. And be sure to also keep detailed records of how you spend your loan, because that can also help make the forgiveness process later go smoother.”
What expenses are eligible to be used with Second Draw PPP loan funds?
Whether it’s a first-time or Second Draw PPP loan, businesses must use at least 60% of the funds it receives on employee payroll. However, the other 40% may be used on other qualifying expenses for the business, such as:
- Mortgages, rent, or leases.
- Interest on debt obligations.
- Expenses incurred as a result of the COVID-19 pandemic response (e.g., personal protective equipment) or public disturbances in 2020 (new for 2021 PPP loans).
Refer to the SBA’s website for a complete list of qualifying expenses.
What other economic relief programs are available for small businesses?
Check with the SBA, banking partners, and local and state civic organizations for more information about grants and other funding programs that may be available. The SBA also specifically has more information about resources tailored for businesses from underserved communities.