Certain qualified borrowers who previously obtained a PPP loan can now apply for a Second Draw PPP Loan with the same basic loan conditions as their First Draw PPP Loan under the Paycheck Protection Program (PPP).
Second Draw PPP Loans can be used to assist pay for payroll expenses, like as benefits. Mortgage interest, rent, utilities, worker safety costs connected to COVID-19, uninsured property damage charges caused by looting or vandalism in 2020, and some supplier costs and expenditures for operations are all possible uses for the funds.
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Businesses Eligible For Second draw PPP Loans
The second draw PPP’s purpose is to provide financial support to firms that have been particularly badly impacted by COVID-19 interruptions.
Finally, second draw loans are considerably more targeted as a result of this. Companies must satisfy the following requirements in order to qualify:
- The company must have previously obtained a PPP loan and only used the entire amount for approved purposes.
- The company must employ fewer than 300 people.
- The company must prove that gross receipts decreased by 25% in at least one quarter of 2020 compared to the same quarter in 2019. (The Small Business Administration defines “gross revenues” as all revenue “including sales of items or services, interest, dividends, rent, royalties, fees, or commissions.”)
Terms Of The Second Draw PPP Loan
A second draw PPP loan might be as small as $2 million, compared to $10 million for a first-time PPP loan. All second draw PPP loans have the same 1% interest rate as regular PPP loans, and no personal guarantee or collateral is required.
The loan’s “covered period” is typically between 8 and 24 weeks, and it begins the day the loan funds are disbursed.
PPP loans with a second draw have a five-year maturity period. For the processing of these loans, neither the government nor the lenders engaged in PPP are authorized to collect any fees.
How To Apply For Second draw PPP Loans
On January 13, 2021, applications started and will conclude on March 31, 2021. Businesses that qualify for second draw PPP loans should contact the bank, credit union, or fintech firm that provided their initial PPP loan.
If the same lender also provides second round PPP loans, you should apply with them directly. The lender will send the application to the SBA for approval once it has been processed.
However, not all lenders that took part in the first round of PPP are still giving loans in the second round, so you may need to find a new lender. Businesses can utilize the SBA’s Lender Match tool or browse this map of qualified lenders to identify a bank.
How Much Is The Second Draw PPP Loan
Borrowers can receive up to 2.5 times their average monthly payroll costs with second draw PPP loans, which follow the same methodology as first draw PPP loans. One of the following methods can be used to compute average monthly payroll costs:
- The twelve months before the loan.
- The calendar year 2019.
- The calendar year 2020
Seasonal companies (those open for less than seven months in a calendar year) and new firms that begin on Feb. 15, 2020, but do not stay open for a full year will have a different method for calculating the average monthly payroll.
- Seasonal businesses: Average total monthly payroll for any 12 weeks between Feb. 15, 2019, and Feb. 15, 2020, for seasonal enterprises.
- New businesses: Total payroll expenses divided by the number of months such costs were paid out for new enterprises.
Hotels, restaurants, and other lodging and food service establishments can borrow up to 3.5 times their monthly payroll expenditures.
The maximum amount for second-draw PPP loans, unlike initial loans, is just $2 million. PPP loans for the first time are limited to $10 million.
How The Second-Draw PPP Loan Can Be Used
Second-draw PPP Loans are forgiven if they are used for covered expenses, such as:
- Employer-provided benefits such as paid sick leave and group insurance are included in payroll costs.
- Payments for the mortgage, rent, utilities, software, and human resources, and accounting needs are all included in operating costs.
- Damage to property caused by demonstrations and riots in 2020, unless covered by insurance.
- Before taking out the second-draw loan, payments to a supplier covered active contracts and purchase orders.
- Health and safety standards necessitated the use of personal protective equipment and modifications.
To qualify for complete loan forgiveness, at least 60% of the entire loan amount must be utilized on payroll expenditures.
>> More: Loan Terms: What You Should Know
The Second-Draw PPP Loan Forgiveness
If you utilize your second-draw loan funds for covered expenditures within 8 to 24 weeks after obtaining your loan, you may be able to have them forgiven. When you apply for a loan, a specific time frame is established. To qualify for complete loan forgiveness, at least 60% of the entire second-draw loan must be utilized on payroll expenditures. Other covered costs listed above can be used up to 40% of the time.
Business owners who borrow less than $150,000 can submit a one-page certification that includes the following information.
- As a consequence of the loan, they were able to keep a certain number of staff.
- An estimate of how much of the loan was used to pay for payroll.
- The whole amount of the loan.
- If the lender hasn’t previously received proof of the qualifying revenue loss, do so now.
Borrowers who borrow more than $150,000 must go through the same forgiveness process as those who took out their first PPP loan. You’ll need paperwork to prove how the money was used if you fall into this group. This might involve the following:
- Payroll expenses and headcount:
Tax forms, canceled checks, bank statements, payment receipts, and third-party payroll reports are all examples of payroll costs and headcount.
- Operating costs:
Receipts for company software, accounting services, utility payments, and rental, lease, or mortgage payments are all examples of operating costs.
- Supplier costs:
Purchase orders, contracts, and receipts for payments made to suppliers are examples of supplier expenses.
- Other covered expenses:
Other costs that are covered include receipts for the purchase of face masks and other personal protective equipment, as well as proof of payment for health and safety upgrades such as sneeze guards, ventilation systems, extended outdoor area, and equipment to do health screening.
>> More: Recourse vs. Non-Recourse Loans
Second-draw PPP Loan Planning Considerations
Please keep the following in mind as you contemplate applying for a PPP Second Draw Loan:
Loan Amount – In most situations, the maximum Second-draw PPP Loan you may get is the same as your first PPP Loan. The maximum loan amount for some borrowers, such as those in NAICS code 72 industries, partnerships, and seasonal employers, may be larger than your original loan.
Using Payroll Costs from 2019 or 2020 – For the most part, your qualifying loan amount is determined by your average monthly payroll. Payroll expenses may be calculated using payroll costs from 2019 or 2020.