How To Apply For The Second Round Of PPP Loans
Businesses that have experienced significant revenue drops due to COVID-19 may be eligible for additional funding through a second round of the Paycheck Protection Program (PPP). The goal is to offer additional financial support to businesses that continue to struggle from the pandemic’s economic impact.
Applications for second draw loans open on January 13, 2021, so it’s important to understand the program’s changes since the first round, as well as how to apply.
What is a PPP loan?
PPP loans are a type of low-interest financing designed to help struggling businesses during the COVID-19 pandemic. As long as your business meets certain spending requirements to retain employees and pay for finance eligible expenses, you can apply for up to 100% loan forgiveness.
The first round of PPP took place in the spring of 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act (or the CARES Act). At the end of 2020, the federal government passed an additional aid package that included $284 billion for the second round of PPP funds.
The latest program is similar to the original PPP round, but there are a few key differences. Even if you received funding in the first round, it’s important to understand what’s changed in order to qualify for loan forgiveness.
PPP loan details
PPP loans come with an interest rate of just 1% with a maturity period of five years and no collateral required. But the most attractive feature is that you can have all or part of the loan forgiven by meeting the SBA’s criteria.
Here’s how you must spend the funds in order to qualify for full loan forgiveness:
- 60% must be spent on payroll expenses.
- 40% must be spent on eligible expenses, like operating costs, supplier costs, damage caused by looting or vandalism in 2020, and personal protective equipment (PPE).
If your loan amount is $150,000 or less, you’re eligible for a simplified forgiveness process. You will only need to fill out a one-page certification form confirming that the funds were spent according to the requirements.
Borrowers can choose a loan coverage period of anywhere between 8-24 weeks.
How do you apply for a PPP loan?
Businesses have many options when applying for a PPP loan. If you’re applying for a second draw loan, you may be able to skip some of the documentation requirements if you work with the same lender who originated your first PPP loan.
Additionally, many online lenders are participating in this round of PPP, making it much easier to apply and get funds delivered. Many companies are halting much of their current offerings in order to focus on offering PPP loans.
The application process is simple. You’ll need to fill out the application directly on their site. You’ll also need to offer the following information, depending on if you got funding through a PPP loan before:
First draw applications (first-time applicants)
- Basic information about the business owner and their business.
- The average monthly payroll costs.
- Details of full-time employees and associated payroll costs.
- Details of all owners with greater than 20% ownership stakes
- Proof of mortgage interest payments, rent payments, and utility bills.
- Bank statements.
- Payroll tax filings such as 941, 940, 1099, or payroll processor records.
Second draw applicants (second-time applicants)
- Must demonstrate a ≥25% loss in revenue in 2020 compared to 2019.
- Must have used their entire first-round PPP loan on eligible expenses.
- Must have fewer than 300 employees.
- Must have been in operation on February 15, 2020.
After your upload and review all the documents needed, your application is reviewed and many applicants will get their funds in as little as a few business days. It is important to note here that the process may look a little different if you’re self-employed.
Who does (and does not) qualify?
The latest PPP round offers funding for both first draw applicants (businesses that didn’t receive any funding in the first round) and second draw applicants (those that did receive previous PPP funding).
Here’s how to qualify for each type of PP loan.
First draw applicants
Eligible businesses that didn’t receive any funding during the first round of PPP may apply for a loan earlier than the second draw applicants through community financial institutions. The intent is to ensure underserved businesses (minority, women, and veteran-owned) are prioritized for funding. The first draw round started January 11, 2021, while the second draw applications open on January 13, 2021.
In order to qualify as a first draw applicant, your business must have 500 or fewer employees. Nonprofits, self-employed individuals, sole proprietors, and independent contractors may also apply. You can borrow up to 2.5x your average monthly payroll costs, up to $10 million. Restaurants and hotels, which are among the hardest-hit industries during the pandemic, can borrow up to 3.5x their average monthly payroll costs.
You can calculate your average monthly payroll in one of three ways:
- 12-month period before the loan.
- 2019 calendar year.
- 2020 calendar year.
Seasonal businesses can take a 12-week average for any period between February 15, 2019, and February 15, 2020.
Second draw applicants
Businesses that received funds in the first PPP round may be eligible to apply again, but there are some distinct differences this time around. First, you must have 300 or fewer employees in order to qualify. You must also demonstrate at least a 25% decrease in your quarterly gross revenue receipts. You can use any corresponding quarters in 2020 and 2019, including the fourth quarter.
Another requirement is that you must have already used all of your first round PPP funds, or use them all by the time your next loan is disbursed. Finally, businesses that permanently closed are not eligible to apply for funds.
Like the first draw program, second draw applicants may borrow up to 2.5x their average monthly payroll costs. However, the maximum loan amount is significantly less at just $2 million. Restaurants and hotels (or any hospitality-related business classified under NAICS code 72) enjoy the same benefit of borrowing up to 3.5x their monthly payroll costs.
There are some notable changes in businesses excluded from second draw loans this round. The following types of companies may not apply for funding:
- Political or lobbying firms.
- Public companies.
- Businesses created after February 15, 2020.
- Businesses created in or with significant operations in the People’s Republic of China or Hong Kong.
- Businesses with a board member who is a resident of the People’s Republic of China.
- Anyone required to submit under the Foreign Agents Registration Act.
- Businesses owned by the president, vice president, heads of executive departments members of Congress, or their spouses.
Newly eligible businesses include chambers of commerce, destination marketing organizations, housing co-ops, news organizations, and religious organizations.
What if you’re denied a loan?
Getting denied for a PPP loan can feel like a major blow, especially during such financially stressed times. The first thing to do is to double-check your application for errors, including your Employer Identification Number and other details.
Next, find out if the lender you worked with has its own approval criteria in addition to the SBA’s guidance. The first round of PPP revealed that many lenders prioritized existing customers or businesses that qualified for larger loan amounts. Ask the financial institution for the cause of the denial. In other words, is it you or them?
If you find out that you do meet the SBA’s PPP requirements but not those of a specific lender, you can re-apply elsewhere with another SBA lender. You may just need to find the right lender who wants to work with businesses of your size.
In the event you don’t qualify for a PPP loan, there are other small business financing options available to consider. Every type of financing comes with its pros and cons. Here’s a quick overview to get some ideas of which one may be a good fit for your business.
|Small business financing options||Who it’s best for|
|Term loan||Established businesses with existing revenue|
|Line of credit||Established businesses with existing revenue|
|Invoice factoring||Businesses struggling with cash flow while waiting for customers to pay invoices|
|SBA Express loans||Businesses needing smaller loan amount|
|SBA Microloan||Startup businesses|