On Jan. 11, 2021 The U.S. Small Business Administration (SBA) reopened the Paycheck Protection Program (PPP) loan portal. The Paycheck Protection Program (PPP) now allows certain eligible borrowers that previously received a First Draw PPP Loan to apply for a Second Draw PPP Loan with the same general loan terms.
Second Draw Loans can only be made to borrowers who took First Draw Loans, have or will have used all the funds, and suffered the 25% or greater reduction in gross receipts in 2020. The SBA is currently accepting Second Draw PPP loan applications from participating lenders and applications will be accepted until March 31, 2021.
In addition, the First Draw PPP Loan program has been reopened for new applicants. The deadline for any eligible borrower who has not yet received a First Draw Loan is March 31, 2021 (the previous First Round application deadline was Aug. 8, 2020). And, all PPP borrowers (whether for First Draw Loans or Second Draw Loans) can now use 2019 or 2020 payroll expense numbers in determining their maximum loan amounts.
What’s New with Second Draw PPP Loans
First Draw Loans have expanded employee size cap eligibility requirements that are limited and applicable to only First Draw Loans. For Second Draw PPP Loans, a business can have no more than 300 employees in order to be eligible.
Second Draw PPP Loan applicants that are part of a single corporate group can not receive more than $4 million of Second Draw PPP Loans in the aggregate.
The Economic Aid Act conditions eligibility for Second Draw PPP loans on whether applicants can demonstrate a 25% reduction in gross receipts in any quarter in 2020 compared to the same quarter in 2019. However, if gross receipts were not down 25% or more in any 2020 calendar quarter as compared to the corresponding quarter in 2019, but total 2020 gross receipts are more than 25% down compared to total 2019 gross receipts, the business is still eligible for a Second Draw Loan.
A borrower can apply for a Second Draw Loan prior to using all First Draw funds, but all First Draw Funds must be applied in full for authorized uses before any Second Draw Loan funds will be disbursed.
For most borrowers, the maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million.
Recent Biden-Harris Administration PPP Revisions
The Biden-Harris administration recently instituted a 14-day period, starting Wednesday, Feb. 24, during which only businesses and nonprofits with fewer than 20 employees can apply for relief through the program.
The smallest of businesses often struggle more than larger businesses to collect the necessary paperwork and secure relief from a lender. Therefore, the 14-day exclusive application period is intended to allow lenders to focus on serving these businesses, which make up a significant majority of all businesses, and often include sole proprietors, independent contractors and other self-employed individuals.
Four other recently announced changes to the PPP program will also be implemented by the first week of March and include:
Allowing sole proprietors, independent contractors, and self-employed individuals to receive more financial support by revising the PPP’s funding formula for these categories of applicants
Eliminating an exclusionary restriction on PPP access for small business owners with prior non-fraud felony convictions, consistent with a bipartisan congressional proposal
Eliminating PPP access restrictions on small business owners who have struggled to make federal student loan payments by eliminating federal student loan debt delinquency and default as disqualifiers to participating in the PPP
Ensuring access for non-citizen small business owners who are lawful U.S. residents by clarifying that they may use Individual Taxpayer Identification Number (ITIN) to apply for the PPP
What Can I Use My PPP Funds For?
Both First and Second Draw PPP Loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.
Other Tips
If you have a Section 7(a) small business lender and have not yet applied for a First Draw PPP Loan, we recommend that you contact them immediately about your desire to apply. Lenders typically prioritize existing customers.
If you do not have a banking relationship with an SBA lender, Fortis may be able to put you in contact with one.
Consultants, law and accounting firms may be able to act as an agent assisting you with your PPP Loan application. The agents cannot charge you a fee and are compensated by the lender. Our consulting affiliate Full Velocity may be able to help you without charge to you.
A helpful list of Frequently Asked Questions about the PPP program as it currently stands can be found here.
Fortis can help you navigate this process and ensure you don’t miss out on Round 2 funding. We encourage you to contact Andrew Comer or another expert attorney on our team and let us help you obtain the PPP loans you deserve.
