Who is eligible for a new PPP loan?
Nobody. The Paycheck Protection Program stopped accepting applications on May 31, 2021, and Congress hasn’t reauthorized it.
What’s still live in 2026 is second draw PPP loan forgiveness, and only for a shrinking group. SBA allows a forgiveness request up to the loan’s maturity date, and every Round Two loan carried a five-year term. Those loans were disbursed between January 11 and May 31, 2021. Five years from that window lands inside this calendar year.
So for almost every Round Two borrower, the work in 2026 isn’t applying. It’s proving what already happened.
The eligibility rules below are history. They still matter, because SBA can test a borrower against them during a loan review years after the fact.
What qualified a business for a second draw loan
Four conditions had to be met. We covered the original program mechanics in our PPP guide, and the Round Two rules tightened nearly every one of them, according to SBA’s second draw program page and the January 14, 2021 interim final rule.
- A first draw loan, fully spent. The borrower had to have already received a First Draw PPP loan and used the full amount only for authorized uses. Forgiveness of that first loan wasn’t required. Full use of the proceeds was.
- 300 employees or fewer. A sharp step down from the 500-employee threshold that governed most first draw applicants.
- A 25% drop in gross receipts. Gross receipts in any 2020 quarter, measured against the same quarter in 2019.
- Authorized uses only. Payroll and benefits, plus mortgage interest, rent, utilities, COVID-19 worker protection costs, uninsured 2020 property damage, and certain supplier and operations costs.
Loan size changed the paperwork. Above $150,000, revenue reduction documentation went in with the application. At $150,000 or less, a borrower could certify at application and substantiate later, at or before forgiveness.
Why a closed eligibility test still has teeth
The 25% gross receipts reduction is the most reviewed number in Round Two. It’s a numerical claim a business made about its own books. If the quarterly figures certified in 2021 don’t reconcile to the filed returns and the general ledger, that’s the first discrepancy an SBA loan review or a False Claims Act inquiry finds.
That deferral for smaller loans created the most common open file in this cohort. A borrower certified to a 25% decline, never had to show it, and in plenty of cases never assembled it. The certification is still on the record. The proof, often, is not.
Rebuilding the quarterly comparison takes a few hours while the year is fresh in the ledger. It’s a forensic project once the bookkeeper has changed twice.
How much can a business borrow?
Nothing under the PPP. No first draw or second draw loan has been made since May 31, 2021, and no successor program has taken its place.
The Round Two formula still matters for a different reason. Loan size is the second most reviewed item in an SBA loan review, right behind the gross receipts test. The number you calculated in 2021 is the number you have to be able to rebuild.
Here’s what the second draw interim final rule set, effective January 12, 2021:
| Element | Round Two rule |
|---|---|
| Standard maximum | The lesser of 2.5 months of average monthly payroll costs or $2 million |
| Accommodation and food services (NAICS 72) | A 3.5 multiplier instead of 2.5, same $2 million cap |
| Payroll reference period | Calendar 2019 or calendar 2020, the borrower’s choice |
| Corporate group cap | $4 million across affiliated borrowers |
| Contrast with Round One | First draw loans were capped at $10 million |
| Loan terms | 1% interest, non-compounding and non-adjustable, five-year maturity, 100% SBA guaranty, no collateral, no personal guaranty |
One line in that table matters more than it looks. Borrowers could pick 2019 or 2020 as the payroll reference year, and many picked whichever produced the larger loan without recording why. That’s a defensible choice. It’s only a problem when nobody wrote it down.
If you’re actually shopping for capital today, that’s a different conversation. Our rundown of short-term business loans and the current SBA loan application requirements is the better starting point.
Where the loan amount calculation goes wrong
SBA loan reviews rarely challenge the multiplier. They challenge the payroll base underneath it. Four errors account for most of the over-borrowing found in this cohort.
- Compensation above the cap. Payroll costs had to be capped at $100,000 annualized per employee. Salaries above that line were routinely included in full.
- Federal payroll taxes withheld. Withheld federal payroll taxes weren’t eligible payroll costs and shouldn’t have been in the base.
- Contractor payments. Independent contractors filed their own applications. Their pay was never part of the hiring business’s payroll costs.
- Employees living abroad. Compensation to employees whose principal residence was outside the United States was excluded.
Any excess borrowed because of one of those isn’t forgivable. It stays a debt. And a borrower who can’t reconstruct the payroll register, the per-employee cap math, and the tie-out to Forms 941 and W-3 has no way to defend the number when SBA asks for it.
Are Second Round PPP loans eligible for forgiveness?
Yes. Second draw loans have always been eligible for full forgiveness on the same substantive standard as first draw loans.
The live question in 2026 is timing. SBA permits a forgiveness request up to the loan’s maturity date, which it describes as up to five years from the date SBA issued the loan number. Round Two notes were issued between January and May 2021. For most of this cohort, that door is closing or already closed this year.
If you’ve never filed, check the date on your note before you do anything else.
The standard forgiveness had to meet
The governing rule is the consolidated forgiveness and loan review interim final rule at 86 FR 8283, published February 5, 2021.
- The 60/40 split. At least 60% of the forgiveness amount had to be attributable to payroll costs. Falling below 60% doesn’t void forgiveness. It caps the forgivable amount proportionally.
- The covered period. It began on the disbursement date and ended on a date the borrower selected, no earlier than 8 weeks and no later than 24 weeks after disbursement.
- Headcount and pay maintenance. Forgiveness is reduced where full-time equivalent headcount or per-employee compensation fell, subject to the statutory safe harbors.
- The decision clock. The lender had 60 days from a complete application to issue a decision to SBA, and SBA remits no later than 90 days after that decision.
The form you filed still shapes your risk
Loans of $150,000 or less used SBA Form 3508S, a one-page certification with no supporting documentation attached. Larger loans used Form 3508EZ or the full Form 3508, with documentation submitted to the lender.
Not submitting documentation is not the same as not needing it.
A 3508S borrower certified to facts it never showed anyone, and SBA kept the right to review the loan and demand the file. The result is an odd inversion. The thinnest borrower files in the country belong to the businesses that had the easiest forgiveness experience. Our post on common PPP loan forgiveness questions walks the form differences, and the accounting rules to follow for PPP loan forgiveness covers how covered-period spend should have hit the ledger.
SBA’s direct forgiveness portal has been open to all borrowers regardless of loan size since March 13, 2024. A borrower still inside the maturity window whose lender participates can file there.
What an unforgiven balance actually is
Any amount not forgiven is a real loan. One percent interest, five-year maturity, monthly payments on the lender’s schedule, no prepayment penalty. The ten-month payment deferral ended ten months after the last day of the covered period for borrowers who never applied, which for Round Two meant 2021 or 2022.
Reaching maturity with an unpaid balance is a default, and the file moves into guaranty purchase and collections.
For scale, data compiled by the Pandemic Response Accountability Committee and current as of late 2022 counted roughly 11.5 million PPP loans issued and roughly 10.5 million fully or partially forgiven, with about 71,400 borrowers appearing to have repaid in full. The unforgiven group is small. It’s also the group that shows up in collections, which is why indinero treats rebuilding the covered-period spend file as ordinary close discipline applied backward, inside the engagement that already owns the books and the return.
Be ready for a Round Two PPP loan
Being ready doesn’t mean being ready to apply for one. It means being ready to defend the one you already took.
Round Two borrowers are past the application and, in most cases, past the forgiveness decision. What they’re still inside is the window where SBA, Treasury, and the Justice Department are working the file. On April 24, 2026, SBA announced it had referred 562,000 suspected fraudulent loans representing $22.2 billion in delinquent PPP and COVID EIDL debt to the Treasury Bureau of the Fiscal Service for collection, and sent the same borrower set to DOJ for investigation.
Enforcement isn’t winding down. DOJ reported more than 200 False Claims Act settlements and judgments for pandemic-related fraud in fiscal year 2025, exceeding $230 million, inside a record $6.8 billion FCA year.
The overwhelming majority of Round Two borrowers acted in good faith. The risk isn’t dishonesty. It’s a thin file.
Keep the file for ten years, not six
Here’s the asymmetry almost nobody explains.
| Party | Minimum retention | Clock starts |
|---|---|---|
| Borrower, Form 3508 or 3508EZ (over $150,000) | 6 years of PPP documentation | When the loan is forgiven or repaid in full |
| Borrower, Form 3508S ($150,000 or less) | 4 years for employment records, 3 years for other records | When the simplified form was submitted |
| Lender, every PPP loan | 10 years of the complete application file | Final disposition of the loan |
| Criminal and civil fraud exposure | 10-year statute of limitations | The date the offense was committed |
The borrower rules come from 86 FR 8283 and, for the small-loan cohort, from 15 U.S.C. 636m(l). An August 2024 interim final rule at 89 FR 68090 pushed lender retention to ten years, and SBA said why: to harmonize with the ten-year statute of limitations created by the PPP and Bank Fraud Enforcement Harmonization Act of 2022.
SBA extended the bank’s obligation. It didn’t extend yours. A borrower following the letter of the rule can lawfully destroy its own file at year six, or year three on the small-loan side, while the lender still holds the application, the certifications, and the correspondence for a decade.
The bank’s copy outlives yours.
Hold the complete PPP file for ten years from final disposition. A second draw application signed in February 2021 carries exposure into February 2031.
The tax treatment most returns got half right
| Question | Federal answer |
|---|---|
| Is forgiven PPP money taxable income? | No. It’s excluded from gross income. |
| Are the expenses paid with it deductible? | Yes. No deduction is denied by reason of the exclusion. |
| When does the tax-exempt income hit basis? | One of three alternatives elected under Rev. Proc. 2021-48 |
| Is a statement required with the return? | Yes, for each year an alternative is applied |
| Does every state match the federal answer? | No. Conformity varies by state. |
Rev. Rul. 2021-2 settled the deduction question, implementing section 276(a) of the COVID-related Tax Relief Act of 2020 and making Notice 2020-32 and Rev. Rul. 2020-27 obsolete.
The half that goes wrong is timing. Rev. Proc. 2021-48 lets a taxpayer treat the tax-exempt income as received or accrued as eligible expenses are paid or incurred, when the forgiveness application is filed, or when forgiveness is granted. That choice drives the year outside basis increases for pass-through owners, which drives whether a loss was deductible when it was claimed. It also requires a statement attached to the return naming the alternative applied.
Plenty of 2021 and 2022 returns went out before the borrower knew the outcome, so the basis adjustment landed in the wrong year or never landed at all. For an S corporation, that income belongs in the Other Adjustments Account and flows through Schedule M-2. The mismatch surfaces later, in diligence.
State conformity adds a layer. California excludes forgiven PPP loans under AB 80 but conditions the related deduction on the business not being publicly traded and meeting a 25% gross receipts reduction test. A multi-state filer can carry a different answer in every state where it files. That’s the quiet error CPA-led business tax services surface, because the ledger and the return get reconciled by one team instead of two vendors comparing notes.
If a final SBA loan review decision arrives
Two different 30-day clocks live here, and conflating them is the most common error in PPP content.
Requesting an SBA loan review. When a lender issues a partial approval and SBA remits a partial amount, SBA Procedural Notice 5000-827666, issued in January 2022, requires the lender to tell the borrower it has 30 calendar days to seek an SBA loan review through that lender. SBA decides whether to take the loan. If it does, deferment doesn’t resume.
Appealing to OHA. A final SBA loan review decision can be appealed to SBA’s Office of Hearings and Appeals under 13 CFR Part 134 Subpart L, within 30 calendar days of receipt, filed through appeals.sba.gov. Under 13 CFR 134.1202 a judge may modify most deadlines but expressly may not modify the time period governing commencement of a case.
Thirty days. No extensions.
The standard of review is clear error of fact or law, so an appeal is won or lost on the contemporaneous record, not on new narrative. An OHA appeal must also be exhausted before a federal district court will hear the matter, so missing the window forecloses court too.
One more point, because it changes who you call. Under 13 CFR 134.208 a party may represent itself or be represented by an attorney, with narrow allowances for a partner, member, or officer of the entity. A CPA who isn’t one of those can’t appear for you. Engage counsel for the appeal. Engage your accountant to build the record counsel will argue from.
Your 2026 PPP posture checklist
If you also claimed the Employee Retention Credit, run the same exercise on that file. Our explainer on the employee retention tax credit covers what substantiation looks like there.
- Confirm disposition in writing. Get the lender’s forgiveness decision letter and SBA’s remittance confirmation. A zero balance in online banking isn’t documentation.
- Rebuild the loan amount. Payroll register, the $100,000 annualized cap per employee, exclusions removed, tied to Forms 941 and W-3.
- Rebuild the 25% gross receipts test. Quarter against comparable quarter, tied to the ledger and the filed return for each year.
- Assemble the covered-period spend file. Payroll, rent, utilities, mortgage interest, worker protection and supplier costs, with the 60/40 split shown.
- Retain everything for ten years from final disposition, not the six or three the minimum rules allow.
- Verify the tax positions taken. Which alternative was elected, whether the statement was attached, whether basis moved in the right year, and whether each state matches.
- Calendar the appeal clock now. Thirty calendar days from receipt, no extensions, counsel engaged immediately.
If you took a second draw loan and can’t produce the gross receipts calculation, the payroll base, and the forgiveness decision letter on request, that’s the gap worth closing this year. Indinero’s CPA-led team rebuilds the file and confirms the tax treatment, with the accounting and the return handled by the same people. Continuous operations since 2009 means the firm that reconstructs a 2021 ledger is still here to explain it in 2031. Pricing starts at $750/mo.
This article is general information, not legal or tax advice. PPP rules were amended repeatedly between 2020 and 2024, and the right answer depends on your loan size, your covered period, your entity type, and the states you file in. Talk to your CPA and, for any SBA appeal, to an attorney.
Frequently asked questions
These are the questions Round Two borrowers ask most often, and most of them have answers that shifted at least once between 2021 and 2026. Here’s where the rules actually landed.
What’s the deadline to file for second draw PPP loan forgiveness?
Second draw PPP loans can be submitted for forgiveness up to the maturity date, five years from the date SBA issued the loan number. Round Two notes were issued between January 11 and May 31, 2021, so that window closes for most borrowers during 2026. If you’ve never filed and you’re still inside it, SBA’s direct forgiveness portal has been open to borrowers of every loan size since March 13, 2024.
How long do I have to keep my PPP loan records?
PPP borrowers using Form 3508 or 3508EZ must keep documentation six years after the loan is forgiven or repaid in full. Form 3508S filers face just four years for employment records and three for everything else, well short of the 10-year statute of limitations created by the PPP and Bank Fraud Enforcement Harmonization Act of 2022. Lenders hold their copy for 10 years, so indinero recommends holding your complete file for 10 years from final disposition.
Is forgiven second draw PPP money taxable?
Forgiven second draw PPP amounts aren’t federal taxable income, and the expenses paid with those funds remain fully deductible. The timing is what returns get wrong, because Rev. Proc. 2021-48 makes you elect one of three moments to treat the tax-exempt income as received, with a statement attached for each year applied. State conformity varies, so indinero reconciles the ledger and the return together across every state you file in.
What happens if SBA denies forgiveness after a loan review?
Any amount SBA declines to forgive stays a real loan at 1% interest with a five-year maturity and monthly payments to your lender. There’s no prepayment penalty, but reaching maturity with a balance outstanding is a default that moves the file into guaranty purchase and collections. Most denials come down to a thin file rather than dishonesty, so indinero rebuilds the payroll base, the 25% gross receipts test, and the covered-period spend file before the response goes back.
How do I appeal a final SBA loan review decision?
A final SBA loan review decision can be appealed to SBA’s Office of Hearings and Appeals within 30 calendar days of receipt. Filings go through SBA’s online appeals portal under 13 CFR Part 134 Subpart L, and a judge can’t extend the deadline for commencing a case. The standard of review is clear error of fact or law, so the appeal turns on the contemporaneous record, and you’ll need an attorney because a CPA can’t appear for you.
What should I do if my PPP loan was referred to Treasury for collection?
A PPP loan referred to Treasury is an active collection matter, so engage counsel immediately and confirm the loan’s disposition in writing. On April 24, 2026, SBA referred 562,000 suspected fraudulent loans representing $22.2 billion in delinquent PPP and COVID EIDL debt to the Treasury Bureau of the Fiscal Service, and sent the same borrower set to the Justice Department. Pull the lender’s forgiveness decision letter and SBA’s remittance confirmation first, because a zero balance in online banking isn’t documentation.
