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.
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.
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
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.