The PPP Extension Act of 2021 has passed by the Senate as of recently to extend the deadline to May 31, 2021 to apply for the Paycheck Protection Program (PPP), established by the CARES Act and implanted through the Small Business Administration. This loan program is a direct incentive for small business owners to keep their workers on payroll, and we want to make sure you know all the facts before applying and understand the terms of the Second Draw of PPP funds so that your business can continue to operate.
Terms for Application
A big question you might be wondering is if you’re eligible for a Second Draw of a PPP loan. The three main terms for application and targeted eligibility are: 1
- You had to have previously received a First Draw PPP Loan and will or have used the full amount only for authorized uses.
- Have no more than 300 employees.
- Can demonstrate at least 25% reduction in gross receipts between comparable quarters in 2019 and 2020. The maximum loan amount of a Second Draw PPP loan is 2.5x the average monthly 2019 or 2020 payroll costs up to $2 million.
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. 1
How to Apply for PPP2
You can apply for a PPP loan through an existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, eligible non-bank lender, or Farm Credit System institution that is participating in PPP. 1
All Second Draw PPP Loans will have the same terms regardless of lender or borrower. A list of participating lenders as well as additional information and full terms can be found here. If you’re wanting to view or start preparing your application, you can download the following PPP borrower application. This is the information that will be requested from you when you apply with your lender.1 2
- PPP Second Draw Borrower Application Form
- Second Draw Borrower Application Form for Schedule C Filers Using Gross Income
Understand PPP2 for Your Business
PPP2 focuses on truly small businesses who need economic relief and if you received funds from the First Draw, then you need to understand a few updates that are being made to the Second Draw.
Qualification: You will need to demonstrate your business had a revenue reduction of at least 25% in gross income from comparable quarters in 2019 to 2020.
Loan cap: The maximum loan amount for a Second Draw is capped at $2 million rather than $10 million from the First Draw. Businesses may receive a loan equal to 2.5 times their monthly payroll.
Documentation can come later. Borrowers receiving loans less than $150,000 are granted a simplified application this time around. You may apply for the loan now through your lender and continue gathering documentation to illustrate the 25% decrease in revenue and will need to supply proper payroll documentation. We recommend talking to your lender about the choosing correct application.2
Food Services Industry: If your business is included in this industry, the maximum loan amount for a Second Draw PPP loan is 3.5 times the average monthly payroll costs compared to the 2.5 amount. This is big news for this industry as hospitality was hit hard during this pandemic and as a whole this industry will receive 40% more as compared to any other PPP second draw borrower. 3
There is a multitude of information included in the new stimulus bill form the President and more information than our team can cover here. We encourage you to meet with your lender or PPP approved banking institution so they can further assist you with applying for loan forgiveness. As a reminder, the deadline to apply is May 31, 2021.
Keep in mind, this blog is for informational purposes only. It's not a replacement for what any qualified lender can provide, so make sure to consult your lender and PPP approved banking institution in order to submit your loan application before the deadline.