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On Monday, Jan. 11th, The U.S. Department of Treasury and the U.S. Small Business Administration began accepting applications for the second round of Payment Protection Program (PPP) loans. This second round will continue until Mar. 31st, 2021.

Both new borrowers and certain existing borrowers are eligible for the second round of PPP loans. Now that applications have started, business leaders need to be prepared to follow the new requirements.

Information About the Second Round of PPP Loans

The rules for the second round of PPP Loans are, in many ways, similar to the initial round. That said, there are certain updates to the first round of funding that employers should be aware of. According to the U.S. Department of Treasury, the key updates include:

  • PPP borrowers can set their PPP loan’s covered period to be any length between eight and 24 weeks to best meet their business needs;
  • PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures;
  • The program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, and direct marketing organizations, among other types of organizations;
  • The PPP provides greater flexibility for seasonal employees;
  • Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount; and
  • Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan.

Last year, the U.S. Small Business Administration (SBA) covered six months of payments on loans that existed as of Mar 27th, 2020  in addition to any new loans issued before Sep. 27th, 2020 under the CARES Act. Under the new bill, beginning in February of 2021, these same borrowers will receive an additional three months of payments from the SBA.

Additionally, for existing borrowers as of Dec. 27th, 2020, the new bill provides another five months of payments for industries that were hit the hardest by COVID-19. Other temporary changes include a guaranty increase from 75% to 90% and fee waivers through Sep. 30th.

Am I Eligible for a Second PPP Loan?

A borrower is generally eligible for a Second Draw PPP Loan if the borrower:

  • Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
  • Has no more than 300 employees; and
  • Can demonstrate at least a 25% reduction in gross receipts for any quarter in 2020 compared to 2019.

Those who are eligible can apply for up to 2.5 times the borrower’s average monthly payroll for 2019 or 2020, with a limit of $2 million. It’s important to note that this maximum is substantially less than the first round of the program which set the limit at $10 million.

Industries that were hit the hardest by COVID-19 (Accommodations, Food Service, etc.) can qualify for loans up to 3.5 times the borrower’s average monthly payroll.

What are the Rules for PPP Loan Forgiveness for Second Draw Loans?

While the application process will likely be easier for most, the forgiveness rules are, for the most part, the same as they were for the first round of PPP loans. Borrowers are eligible to have their loans forgiven in full provided they use the funds for eligible costs within the covered period (8-24 weeks from loan disbursement).

A minimum of 60% of the PPP loan must have been spent on payroll costs in order to qualify for full forgiveness. The rest can be used for business mortgage interest payments, rent, utilities, or other expenses under the new stimulus bill, such as specific operation expenses, supplier costs, and worker protection expenses. 

Please note: in order to receive maximum loan forgiveness, detailed documentation of PPP spending is necessary, including paid checks, payroll documentation, receipts, and billing statements.

What is the Process to Apply for Loan Forgiveness?

The U.S. Small Business Administration has until Jan. 20th, 2021 to develop forms and instructions for a forgiveness application for loans of up to $150,000. Borrowers who qualify will be required to include details about the number of employees retained and the amount spent on payroll in addition to signing and submitting the form.

Borrowers must also attest to the accuracy of the certification and compliance with PPP requirements. Simplified forgiveness applications will not require supporting documentation, however, they must be retained for up to four years for future review by the SBA. The new PPP program launched this week does not change the forgiveness process for loans over $150,000.

What’s Next?

Employers should review the criteria for this second round of PPP loans. Employers considering applying should prepare and have on hand all relevant documentation.

We will continue to monitor any additional developments regarding the PPP and deliver updates as necessary. For more information and support, contact Launchways.

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