PPP Round 2: What small business owners need to do right now to get help

Syracuse, N.Y. — The $900 billion stimulus relief bill contains $284 billion for a second round of loans to small businesses under the federal government’s Paycheck Protection Program.

The U.S. Small Business Administration approved 5 million PPP loans, totaling $500 billion, in the first round of the program, which ended Aug. 8. The program helps businesses harmed by the economic shutdowns during the coronavirus pandemic and to avoid layoffs.

The SBA has issued rules for the second round. It opens next week, so don’t dawdle.

Here’s what business owners need to know:

Can a business apply for a second loan if it received one in the first round?

Yes, businesses can receive a second loan — called a second draw — if they have spent the entire amount of the first loan on or before the date the second loan is disbursed, and they still need help. (However, it is unclear if borrowers who returned unused portions of their first loans are eligible for a second loan, according to the Bond, Schoeneck & King law firm.)

When and how can businesses apply?

The loans will be made through SBA‑approved lenders and guaranteed by the SBA. So businesses must apply to those lenders by filling out the application forms provided by the bank. It’s a good idea for applicants to check first with banks they already have relationships with to see if they will be making PPP loans. They can also check the SBA’s list of lenders participating in the PPP program.

When can borrowers apply?

Community financial institutions will be able to make first draw loans (loans to businesses that have not previously received a PPP loan) starting on Monday, Jan. 11, and second draw loans (loans to businesses that have previously received one) starting on Wednesday, Jan. 13. The program will open to all participating lenders shortly thereafter.

The Economic Aid Act defines community financial institutions as four types of lenders: community financial development institution, minority depository institution, community development corporation and microlender intermediary.

What is the deadline for applying?

The program will end on March 31, 2021, or earlier if the money runs out like it initially did during the program’s first round. So businesses should apply as soon as possible.

What businesses are eligible?

For businesses seeking their first PPP loan, the requirements are generally the same as they were in the first round.

First draw loans are generally limited to businesses with a maximum of 500 employees (including domestic and foreign affiliates). Certain types of businesses are excluded from the second round, including publicly traded companies, businesses primarily engaged in political or lobbying activities, and China-affiliated businesses.

Businesses seeking a second draw loan can employ no more than 300 people (500 employees for restaurants and hotels) and must demonstrate at least a 25{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} reduction in gross revenue between one comparable quarter in 2019 and 2020. Alternatively, a borrower may submit annual tax forms showing a reduction in annual revenue of 25{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} or greater in 2020 compared to 2019.

Why are second draw loans generally limited to businesses with 300 or fewer employees rather than 500?

The first round of the program was criticized for lending money to large businesses that had access to capital and, thus, did not really need the government loans. Jeffrey Scheer, a business law attorney with Bond, Schoeneck & King, said Congress wanted to make sure those receiving a second loan truly need it.

“They really tried to focus in on small businesses,” he said.

How much can a business borrow?

Loans are capped at 2.5 times an applicant’s average monthly payroll costs in the one year prior to the loan being issued (3.5 times for restaurants and other eligible hospitality businesses).

Loans are limited to a maximum of $10 million for first time PPP borrowers and $2 million for second time borrowers.

What can the money be used for?

The loan proceeds can be used to cover a business’s payroll and certain other expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures.

What about loan forgiveness?

If a business uses at least 60{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of the loan on payroll expenses and maintains its employment levels during the covered period of the loan, it can apply to have the loan forgiven. Otherwise, the loans carry a 1{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} interest rate and a maturity of five years.

Forgiven PPP loans are not considered income for federal tax purposes.

What is the covered period of the loans?

In the first round, businesses had to pick either eight or 24 weeks. But the second round provides more flexibility, allowing businesses to select any period between eight and 24 weeks.

Will the loans require collateral or personal guarantees?

No, the loans will be 100{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} guaranteed by the U.S. Small Business Administration and will require neither collateral nor personal guarantees.

Rick Moriarty covers business news and consumer issues. Got a tip, comment or story idea? Contact him anytime: Email | Twitter | Facebook | 315-470-3148