Second Draw PPP Loan
If your business has already received a First Draw PPP loan, you may be eligible for a Second Draw PPP Loan. New companies that have not already received a PPP Loan are now allowed to apply for a First Draw PPP Loan.
This article has been updated as of March 15, 2021. For the latest changes, you can go to www.sba.gov.
Critical Updates: Second Draw PPP Loan
Here are some critical updates listed by SBA for Second Draw PPP Loans:
- Specific current PPP borrowers are now eligible to apply for a Second Draw PPP Loan.
- Some existing PPP borrowers may request to adjust their First Draw PPP Loan amount.
- The PPP provides greater flexibility for temporary/ seasonal employees.
- PPP loans will cover further business costs, including property damage expenses, operations costs, worker protection expenses, and supplier costs for up to 40% of the total loan.
- Borrowers can set their second draw PPP loan covered period to be any length between 8 – 24 weeks to meet their business needs best.
- The program’s eligibility is increased to include 501(c)(6)s, direct marketing organizations, housing co-ops, and other types of companies.
- If you have already received the EIDL advance with your first PPP loan and applied for forgiveness, the forgiven amount did not include the EIDL advance. This has now been reversed, so if you have made payments or paid off this amount, then your funds will be returned to you.
- The payback period changed from 24 months to 60 months.
- If your Second Draw PPP Loan is below $150,000, the process will be expedited.
- You must certify that your continuation of business is dependent on this loan.
- You will have 24 weeks to spend the funds received.
- The end date is March 31, or when funds are depleted.
- It is highly recommended to use the same vendor you used for the first loan.
- The loan amount is up to 2.5% of the monthly payroll (must be payroll and not 1099 employees/ subcontractors).
- Hospitality businesses (NCIS codes beginning at 72 based on 2019 tax return) will be eligible for a principal loan amount of 3.5% of monthly payroll.
Who Qualifies For A Second Draw PPP Loan?
A business is generally eligible for a Second Draw PPP Loan if the borrower:
- Has 300 employees or less
- Received a First Draw PPP Loan and has used the money for only authorized expenses
- Must have had a revenue dip of 25%+ for one quarter in 2020 compared to 2019.
Exclusivity Period for Smallest Businesses Has Ended as of March 9, 2021
For a short, 14-day period, only non-profits and businesses with less than 20 employees were able to apply. However, that period has already ended as of March 9, 2021. This does not mean that you cannot apply, only that lenders can submit second-draw PPP loan applications for all qualified companies.
Additional PPP changes for the smallest of businesses are to be implemented in early March.
SBA continues to address concerns about obstacles to loan access for minority, underserved, veteran, and women-owned businesses. Congress has set aside funds for smaller companies, borrowers in low- and moderate-income communities, and smaller community lenders. These set-asides include:
- $35 billion for new first draw PPP borrowers
- $15 billion across first and second draw PPP loans for lending by neighborhood financial institutions
- $15 billion across first and second draw PPP loans for lending by Insured Depository Institutions, Credit Unions, and Farm Credit System Institutions with consolidated assets of less than $10 billion
- $15 billion and $25 billion for first and second draw PPP loans for borrowers with a maximum of 10 employees or loans less than $250,000 in low/ moderate-income neighborhoods.
What Can You Pay For With The Second Draw PPP Loan?
The Paycheck Protection Program now permits certain qualified businesses that received the first PPP loan to apply for a Second Draw PPP Loan with the same loan terms.
A Second Draw PPP Loan can be used to pay for payroll costs and benefits, mortgage interest, rent, utilities, employee safety costs associated with COVID-19, uninsured property damages caused by 2020 vandalism, and certain supplier costs expenses.
Full Forgiveness Terms
Second Draw PPP Loans offered to qualified businesses are eligible for complete loan forgiveness if during the 8- to 24-week covered period after loan payment:
- Employee and compensation levels are kept the same as required for the First Draw PPP loan.
- The loan money is only spent on approved business expenses.
- At least 60% of the loan is used toward payroll costs.
Increased PPP Loan Assistance For Certain Businesses
For most borrowers, the max loan amount for a Second Draw PPP Loan is 2.5x the average monthly 2019 or 2020 payroll costs up to $2 million. For Food Services and Accommodation businesses, the maximum loan amount for a Second Draw PPP Loan is 3.5x the average monthly 2019 or 2020 payroll costs up to $2 million.
How Do You Apply For The Second Draw PPP Loan?
Companies with fewer than 20 employees and sole proprietors can apply for Second Draw PPP loans from February 24 – March 9, 2021. The program will be available to all qualified companies beginning March 10 – March 31, 2021.
Lender Match can help connect you with a lender. You can also view all lenders near you on a map. All Second Draw PPP Loans will have the same terms and conditions regardless of lender.
If you wish to start preparing your application, you can download the following PPP borrower application form to see what information will be requested when you apply with a lender:
- Paycheck Protection Program Second Draw Borrower Application Form
- Paycheck Protection Program Second Draw Borrower Application Form for Schedule Filers Using Gross Income
Existing borrowers
Lenders typically decide when to submit individual PPP loan applications to SBA. Therefore, any questions or concerns regarding individual PPP loan applications must be directed to your lender.
For borrowers who have had their application submitted to SBA by their lender, you can create an account in the SBA Capital Access Financial System (or CAFS) to monitor their loan status. Get account enrollment instructions.
If you are unsure about your PPP loan status or your PPP loan application has been flagged due to data anomalies, please contact your lender to get more information.
Ensuring PPP Loan Access for All
At least $25 billion is being set aside for Second Draw PPP Loans to qualified borrowers with a maximum of 10 employees or $250,000 or less to eligible borrowers in low/ moderate-income communities. To improve access for smaller lenders and their customers, SBA will initially only allow Second Draw PPP Loan applications from community financial institutions starting on January 13, 2021. The PPP will open to all participating lenders for Second Draw PPP Loans shortly after that. Visit www.sba.gov or www.treasury.gov for more information and details, including the comprehensive program rules.
Frequently Asked Questions About Second Draw PPP Loans
What should I do before applying for a Second Draw PPP Loan?
PPP borrowers should verify whether they are entitled to an increased amount for their First Draw PPP Loan. The Economic Aid Act changed the rules for defining the maximum amount of loans for Seasonal Employers, New Entities, and Farmers and Ranchers. Borrowers qualified for an increased First Draw PPP Loan amount based on these changes are allowed to request an increase from their lender, as long as the borrower has not already obtained forgiveness from the SBA for their First Draw PPP Loan.
When are Second Draw PPP Loans available?
As of this article’s date, all qualified PPP lenders can now submit Second Draw PPP Loan applications. Second Draw PPP Loan applications must be completed by March 31, 2021.
Who is not eligible for a Second Draw PPP Loan?
An ineligible business to receive a First Draw PPP Loan would also be ineligible for a Second Draw PPP Loan. The Economic Aid Act would also prevent the following entities from obtaining a Second Draw PPP Loan:
- A business primarily involved in lobbying activities or political activities
- Certain companies and organizations with ties to China
- Any person required to file a registration statement under the Foreign Agents Registration Act
- Anyone that obtains a grant for shuttered venue operators under Section 234 of the Economic Aid Act
- Companies in which the President, Vice President, Member of Congress, or Head of an Executive department, or the spouse of such person controls, owns, or holds 20% equity or more
- A publicly-traded company or business
What are the terms of a Second Draw PPP Loan?
In most cases, the Second Draw PPP Loans will be on the same terms as the First Draw PPP Loans. Any loan amount that’s not forgiven will collect interest at the rate of 1% per annum and have a 5-year maturity. No personal guaranty is required, and the SBA will fully guarantee the Second Draw PPP Loans.
What is the maximum amount for a Second Draw PPP Loan?
For most borrowers, the max loan amount for a Second Draw PPP Loan is 2.5x the average monthly 2019 or 2020 payroll costs up to $2 million. For Accommodation and Food Services businesses, the max loan amount for a Second Draw PPP Loan is 3.5x the average monthly 2019 or 2020 payroll costs up to $2 million.
How is the maximum amount determined for self-employed borrowers?
For an individual that has income from self-employment and submits a Form 1040, Schedule C, the max loan amount is dependent on whether that individual has employees or not.
- No Employees: max loan amount is 2.5 times the borrower’s net profit in 2019 or 2020 as reported on Form 1040 Schedule C (capped at $100,000) divided by 12.
- Employees: max loan amount is the lesser of:
- 2.5 times the sum of (i) net profit of borrower in 2019 or 2020 (at borrower’s election), as reported on IRS Form 1040, Schedule C (capped at $100,000) divided by 12; and (ii) the average total monthly payment for employee payroll costs incurred or paid by the borrower during the same year elected by the borrower; or
- $2 million
What if the borrower has an unresolved First Draw PPP Loan?
Suppose a borrower’s First Draw PPP Loan is under review, or SBA indicates the borrower may have been ineligible for a First Draw PPP Loan. In that case, the lender will receive an SBA notification upon applying for guaranty of a Second Draw PPP Loan (“unresolved borrower”). If the lender is informed that a Second Draw PPP Loan borrower is an unresolved borrower, the lender will not receive an SBA number. The SBA will expedite resolving that borrower’s issue and inform the lender on how to obtain an SBA number for the Second Draw PPP Loan.
Can a Second Draw PPP Loan be forgiven?
In most cases, Second Draw PPP Loans are qualified for forgiveness on the same terms as First Draw PPP Loans. To receive total forgiveness, during the “Covered Period,” a Second Draw PPP Loan borrower must ensure:
- Employee and compensation levels are the same as required for the First Draw PPP loan.
- The loan money is only spent on approved business expenses.
- At least 60% of the loan is used toward payroll costs.
The information included in this article is presented for informational purposes only. It should not be construed as legal, business, tax, accounting, financial, investment, or other advice on any subject and should not be relied upon for such. This document’s information may not reflect the most current developments as these topics are exceptionally fluid and may change daily. The content and interpretation of the subjects addressed may be revised as needed.
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