Guidance from the Small Business Administration (SBA) for lenders of the Round Two (aka “second draw”) of Paycheck Protection Program (PPP) loans is out, and the portal is open.
What does this second round of PPP mean for your small business facing a yet uncertain 2021?
Keep reading to find out how the recent $284 billion allocation to the PPP may impact your business.
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Who is eligible for a new PPP loan?
- Businesses that received a Round One PPP are eligible to apply for a second draw PPP loan as long as they have used or will use the full amount of the funds they received in the first round.
- Businesses with no more than 300 employees are eligible to apply. If your company has multiple sites, you must not have more than 300 employees per location.
- Businesses that can show at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same quarter in 2019 are eligible. If applying after January 2, 2021, you may use the fourth quarter of 2020 to show eligibility.
- Businesses that can certify that “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant as of the date on which the PPP loan application is submitted.”
- Businesses that were operational before February 15, 2020, and are operating currently.
501(c)(6) organizations (i.e., real estate boards, chambers of commerce, and other membership organizations) are now eligible to apply.
If your business did not receive a Round One loan, it’s not eligible for a Round Two loan. However, you may still be able to get a Round One loan because funds have been set aside for first time PPP borrowers.
How much can a business borrow?
The loan amounts that eligible businesses may apply for is the lesser of:
- For most businesses, 2.5 times the average monthly payroll costs (either for 2019 or 2020)—or—$2 million
- For restaurants and hotels (NAICS code 72) borrowers, 3.5 times the average monthly payroll costs—or—$2 million
Note: The maximum loan amount for first-time PPP applicants is $10 million.
Second Round PPP loan terms
The terms of a PPP loan remain 1% fixed rate and 5-years to maturity (if your loan is forgiven, no payments or interest is due). Applications will be accepted until March 31, or the funds are all allocated, whichever is first. Funds are expected to be loaned out quickly, so be sure to hurry to your bank to apply.
Are Second Round PPP loans eligible for forgiveness?
Yes. This time around, lawmakers sought to make the covered expenses more helpful and simplify the forgiveness process. A one-page, simplified forgiveness application for loans of less than $150,000 is in the works.
Changes to the covered period
In Round One, you had a choice of the covered period being either eight weeks or twenty-four weeks. In Round Two, borrowers can choose between eight weeks and twenty-four weeks, giving businesses more flexibility.
Changes to covered expenses
The list of permissible expenses for both first draw and second draw PPP borrowers has expanded. At least 60% of the loan must cover payroll costs (the same as Round One). The remaining “up to 40% portion” rules still allow rent, interest, and utilities.
Additional permissible expenses for the “up to 40% portion” include:
- Business improvements made to comply with safety protocols (e.g., PPE, ventilation, drive-through windows, physical barriers, and so on)
- Various software and cloud-computing service costs
- Repairs for property damage not covered by insurance that were caused by “…vandalism or looting due to public disturbances that occurred during 2020.”
- Certain payments to suppliers
- In addition to health insurance, life, disability, and vision or dental insurance are included in the payroll definition
For more on this: our partners at Gusto created a chart of covered expenses for each borrower category.
Were changes made to PPP that affect business taxes?
Good news! The expenses paid for with forgiven PPP loans—both Round One and Round Two—are now deductible.
Where can you apply for a second draw PPP loan?
Lawmakers set aside funds for specific types of lenders to increase equity and access.
- Community financial institutions, including CDFIs and MDIs, will issue $15 billion
- Small depository institutions will issue $15 billion
- Minority Business Development Centers program under the Minority Business Development Agency (MBDA) will issue $25 million
For those who have not received a PPP loan or have not applied for one, keep in mind that new lenders to the program will need time to get set up and running. At the same time, some Round One PPP lenders may not offer Round Two loans. It is important to contact a participating lender in your area sooner rather than later.
Applications from community lenders are being considered first.
Gusto also put together a list of lenders that they will continue to update as information becomes available. The SBA provides a list of approved lenders in your area (i.e., Portland Lender List). The SBA will match borrower inquiries to lenders that specialize in underserved communities and smaller asset size lenders.
What is on the Round Two application?
Lenders have their own process for applying for a PPP loan. However, the loan limit, terms, and forgiveness process are the same across lenders.
Be ready for a Round Two PPP loan
On January 11, 2021, the SBA began accepting PPP loan applications from participating Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), Certified Development Companies (CDCs), and microloan intermediaries.
Team up with your accountant or get in touch with an inDinero expert to check on eligibility and help with your application. In the meantime, gather and review your 2020 payroll and benefit reports and review headcount numbers.
Is this your first time through the PPP loan process? Let our experts guide you through it.
Quick Note: This article is provided for informational purposes only, and is not legal, financial, accounting, or tax advice. You should consult appropriate professionals for advice on your specific situation. inDinero assumes no liability for actions taken in reliance upon the information contained herein.