It’s time to apply for the second round of emergency funding to help your small business stay afloat in 2021. The application for the new round of Paycheck Protection Program funding opened on January 11th and is expected to last through March 31st. However, funding ran out quickly in the first PPP round so it’s a great idea to apply ASAP.
Congress has approved $284.5 billion in new Paycheck Protection Program (PPP) funding. Business and industries eligible for these PPP loans have been expanded under the new bill along with a wider use of proceeds.
Here’s information on the new PPP program and how you can get a 2nd PPP loan for your small business.
What are the details of the new PPP funding round?
The Paycheck Protection Program now allows certain eligible borrowers that previously received a PPP loan to apply for a second PPP loan with the same general loan terms as their first PPP Loan. Second PPP loans can be used for approved expenses and are forgivable if guidelines are met.
Who is eligible for PPP funding?
Businesses that can demonstrate at least 25% reduction in gross receipts year over year and meet other requirements may be eligible for a second PPP loan.
Business owners must meet the following requirements to qualify:
- Have no more than 300 employees.
- Have used or will use the full amount of your first PPP loan.
- Experienced a revenue reduction of 25 percent or greater in 2020 relative to 2019. The difference for new businesses is in the quarters they use to demonstrate the loss.
- Have not permanently closed. Businesses that have temporarily closed or suspended operations can receive a second PPP loan.
PPP loans from this round are available to businesses, certain nonprofits, self-employed individuals, independent contractors, sole proprietors, housing cooperatives, small agricultural cooperatives, veterans’ organizations and tribal businesses.
How much can I receive for a second PPP loan?
Unlike initial PPP loans, the maximum amount for the second round of PPP loans is just $2 million compared to the first round amount of $10 million.
The formula for second loans under this program is similar to that of initial loans: Business owners can receive up to 2.5 times their average monthly payroll costs. Hotels, restaurants and other accommodation and food service businesses can borrow up to 3.5 times their average monthly payroll costs.
Average monthly payroll costs can be calculated using one of the following:
- The 12 months prior to the loan.
- Calendar year 2019.
- Calendar year 2020.
Your payroll processor can help you crunch the numbers and produce documentation you can use during the application process.
Seasonal businesses: (Typically operating for less than seven months in a calendar year) and new businesses in operation on Feb. 15, 2020, but not open for a full 12 months, will use a separate formula to calculate average monthly payroll.
New businesses: Total payroll costs divided by the number of months those costs were paid out.
Hotels, restaurants and other accommodation and food service businesses: Can borrow up to 3.5 times their average monthly payroll costs.
Expanded use of PPP 2nd round funding
Congress has expanded the types of expenses for which all PPP loans can be used, which applies to existing PPP loans, unless forgiveness has already been obtained, and new PPP loans.
Previous proceed use for first round of PPP:
Funding could be used for payroll, rent, covered mortgage interest and utilities.
New proceed use for the next round of PPP funding:
The PPP now allows proceeds to be used for:
- Operations Expenditures: payments for business software or cloud computing service that support business operations, product or service delivery, the processing, payment or tracking of payroll expenses, HR and billing functions, or tracking of supplies, inventory, records, and expenses
- Property Damage Costs: costs related to property damaged and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation
- Supplier Costs: expenditures to a supplier of goods that are essential to operations when the expenditure was made and is made pursuant to a contract or order in effect at any time before the covered period or, with respect to perishable goods, in effect at any time during the covered period
- Worker Protection: operating or capital expenditures that allow a business to comply with requirements or guidance issued by the CDC, HHS, OSHA or any state or local government during the period beginning March 1, 2020 and ending on the date which the national emergency declared by the president expires. Other covered costs include the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to the pandemic. These expenses may incude include PPE, physical barriers that were put in place, expansion of indoor/outdoor space, ventilation or filtration systems and drive-through windows
Is loan forgiveness available for a second PPP loan?
Yes! As with the first round of PPP, these loans may be entirely forgiven if spent for the proper purposes (primarily payroll) during the proper time period. Currently there are three PPP loan forgiveness applications:
Borrowers can continue to use those forms for PPP loans they received earlier in 2020, unless and until new applications are released. The U.S. Treasury and the SBA are expected to release new loan forgiveness applications.
In addition, there will now be a simplified (but not automatic) forgiveness for loans of $150,000 or less. That means you must take action and get approved for loan forgiveness.
Can I reapply for a PPP loan if I returned my first one?
You may. If you returned all or part of your PPP loan, you can apply for an “amount equal to the difference between the amount retained and the maximum amount applicable.” Or, if you did not accept the full amount you may request a modification to allow you to borrow the full amount for which your business is eligible.
How to apply for a 2nd PPP loan
The application for the PPP opened on January 11, 2021. To apply for a second PPP loan, businesses will need to submit documents to verify payroll costs and revenue loss, such as tax forms or bank statements. To help you gather and organize the documents that may be required by your lender, read Possible PPP Required Documentation to Apply for a PPP Loan in 2021.
You can avoid some paperwork by using the same lender for your first- and second PPP loan, provided you use payroll figures from calendar year 2019 when applying for the second loan.
Borrowers seeking $150,000 or less don’t need to prove revenue loss when they apply for a second loan but will need to do so to apply for loan forgiveness.
Let SmartBiz help you get ready for the new round of the Paycheck Protection Program (PPP) approved by Congress*. SmartBiz works with small business owners like you every day to help you apply for the funding you need. Since 2013, we’ve specialized in SBA (Small Business Administration) loans. The new round of the Paycheck Protection Program, to be administered by the SBA, provides continued financial support to help eligible small businesses keep their employees and stay open safely during the COVID-19 pandemic.
Start a SmartBiz Loans streamlined application here.
*The availability of PPP loans remains subject to SBA guidance and other factors, including the amount of funding available to banks and the quantity of eligible applicants considered on a first-come, first-served basis. The information provided above is for educational purposes only. Please consult the SBA’s website for actual rules and the most current guidance.