Paycheck Protection Program (PPP) loans have helped many small businesses stay in operation during the COVID-19 pandemic. As the impact of the pandemic is still being felt across the country, new measures are being taken for small business relief.
More than $284 billion is budgeted for a new round of PPP loans through the CARES Act. Similar to earlier PPP loans, these loans may be forgiven in full if the business properly spends the proceeds in a certain period of time. Keep reading to learn how to qualify for a new PPP loan in 2021.
Do I qualify for a second draw PPP loan? – Updates to the CARES Act will be effective as soon as legislation is enacted. The new provisions cover three categories for PPP loans. Businesses may apply for a new PPP loan if they did not apply during the first round. Businesses that obtained a PPP loan during the first round but need additional funding can apply for a second draw PPP loan. Finally, businesses that returned their PPP loan or did not receive the full amount for which they qualified can request additional funding.
Second draw PPP loans are obviously the biggest question mark for small businesses. If your business is still in need of funding beyond your first PPP loan, this could be an opportunity for relief. You may qualify for a second draw PPP loan if the following requirements are met.
- Your business fits the criteria of eligible small businesses, including sole proprietors and self-employed individuals.
- You have no more than 300 employees.
- You can show at least a 25% reduction in revenue from one 2020 quarter to a previous quarter.
- You have used or plan to use the first PPP loan that was already received.
If your business is not usually eligible for SBA loans, your primary activity is lobbying, or at least 20% of your business ownership is in China, you may not qualify for PPP loans. There are also specific criteria for calculating a 25% reduction in revenue. Carefully review the updated CARES Act to ensure your business qualifies for a second draw PPP loan.
I returned my first Paycheck Protection Program loan. Can I reapply? – Businesses that returned their first PPP loan may reapply for a new PPP loan. You can apply for a loan amount that equals the difference between the maximum applicable amount and the amount you retained. If you did not retain any of the loan amount, you can qualify for up to the maximum amount.
I never received a PPP loan. Can I apply? – If you did not apply for a PPP loan during the first round, you can apply for a first-time PPP loan. Funding is still available for first-time PPP loans, and the original terms are still in place.
How much can I get with a PPP loan? – The CARES Act originally made provisions for PPP loans up to $10 million. However, second draw PPP loans are available for a maximum amount of $2 million. A business that qualifies for a second draw loan may only receive one loan.
Your business can qualify for up to 2.5 times the average costs of your monthly payroll. You can calculate this number by multiplying your average gross monthly payroll costs by 2.5 for the year before the loan date or by multiplying your average gross monthly payroll cost by 2.5 for 2019. If you are a new or seasonal business, the formula for calculating average monthly payroll costs differs.
The same definition of payroll from the CARES Act applies to the second draw PPP loan. However, a new addition includes a definition for group benefits. For self-employed individuals, the legislation does not impact how formal payroll is filed.
Will second draw PPP loans be forgiven? – There is loan forgiveness for second draw PPP loans. Similar to the first round of PPP loans, these loans may potentially be forgiven in full. To qualify for loan forgiveness, a business must properly send the funds, primarily on payroll, during the specific timeframe.
The existing applications for PPP loan forgiveness still apply, and they can also be used for earlier PPP loans received in 2020. However, the Treasury and SBA are expected to release new applications for loan forgiveness once the updated PPP provisions are in place.
For loans of $150,000 or less, there is a new, simplified loan forgiveness route. Once the law is enacted, the SBA Administrator can release a one-page forgiveness application within 24 days. Both first round and new PPP loans will be included in this application. The borrower must describe how many employees were retained due to the PPP loan, how much of the loan proceeds were spent on payroll, and the total loan amount.
What are the spending requirements for a second draw PPP loan? – PPP loans are intended to help businesses keep their employees on payroll. In order to receive loan forgiveness, at least 60% of the loan amount must go to payroll. The remaining 40% can be spent on qualified expenses, including rent, utilities, overed operations expenditure, and more. Fund must be spent within the covered period, beginning from the date the PPP loan is originated. Businesses may choose between 8 or 24 weeks as the covered period to spend their funds.
How do I get a new PPP loan? – Lenders that participated in the first round of PPP loans may not participate in the new round. A lender may check your personal credit, but a credit check is not required for a second draw PPP loan. The normal SBA collateral requirements are waived and there is no personal guarantee.
Additional small business relief is being enacted in the CARES ACT as well. New EIDL grants totally $20 billion are included, self-employed and independent contractor pandemic unemployment benefits are extended, and payment relief is extended for eligible SBA loans.
If your business needs help navigating the complexities of applying for a second loan through the Paycheck Protection Program, contact us today to learn how K-38 Consulting can help you properly and accurately submit an application for the Paycheck Protection Program to ensure your business reaps the maximum benefits.