In December, Congress passed a bill allotting $284 billion in new funding. The Paycheck Protection Program (PPP) Second Draw will provide the hardest-hit businesses a chance at a second loan.
The PPP 2.0 makes other changes too, including eligibility and limits for some loan sizes. Dennis Gallant answers some commonly asked questions on the Second Draw below.
Who is eligible for the PPP Second Draw?
Both first-time applicants and returning borrowers are eligible for a PPP Second Draw.
Most of the original PPP rules apply to first-time applicants. These rules include 500 or fewer employees, certification that current economic uncertainty makes the loan request necessary, and more. Additionally, applicants must have been in operation on or before February 15, 2020 to qualify.
For those seeking a second PPP loan, the rules include the following:
- Must have 300 or fewer employees;
- Must demonstrate that gross receipts in any calendar quarter of 2020 were at least 25% lower than the same quarter in 2019; and
- Must prove that all of the money from their first PPP loan has been spent on allowable expenses.
When can I apply for the PPP Second Draw?
As with the first PPP loan, the second draw will be issued by banks and other lenders. Borrowers can apply starting January 19, 2021. The deadline to apply for a PPP Second Draw is March 31, 2021.
What is the estimated loan amount?
First-time borrowers are eligible for 2.5x their average monthly payroll cost, up to $10 million.
Second-time borrowers have a loan cap of $2 million. Food services and lodging businesses are eligible for loans of 3.5x their average monthly payroll with a cap of $2 million.
Is the PPP Second Draw forgivable?
Loans may be forgiven if the program’s rules are followed. The rules include the following:
- At least 60% of the loan must be used to pay employees. The remaining must be spent on qualifying expenses.
- Borrowers can choose how much time they want to spend the money, so long as it is between 8 and 24 weeks.
Loans that are not forgiven carry a 1% interest rate. The repayment term generally runs for 5 years.
What counts as a “qualifying expense?”
The remaining 40% of the PPP Second Draw may be spent on rent, utilities, mortgage interest payments, and other expenses.
The new stimulus bill included the following as qualifying expenses:
- Payments to suppliers;
- Certain property damage not covered by insurance;
- Covid-related safety gear for workers; and the
- Cost of erecting barriers and otherwise altering spaces to comply with social distancing guidelines and other health mandates.
Is the paperwork needed for the PPP Second Draw the same as the first?
Exact paperwork requirements will vary by lender. Applicants will generally need copies of their payroll records. Additionally, many lenders will also request the business’s 2019 tax return, articles of incorporation, or a state business registration certificate.
Second Draw seekers will need to provide records certifying that sales dropped at least 25% in one quarter in the last year. Lenders are not required to collect that proof before making a loan under $150,000. However, this proof must be received before the loan is eligible for forgiveness. Therefore, most lenders plan to ask for it during the application process.
What time frame should I expect to receive the money?
At minimum, a typical loan will take a few days to go from application to payment. This is due to added fraud checks and intensified vetting processes.
Will the money run out?
The first PPP ran dry in 13 days before Congress allocated more money. Treasury Department officials believe that $284 billion will be sufficient to fund all qualified applicants.