2/1/2021

Financial News

First and Second Draw PPP Loans Now Available

If your business is in need of financial assistance, the Paycheck Protection Program could help. Here are the differences between the first and second PPP draws.

Tim Wu
Tim Wu

Head of Growth

Table of Contents

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In 2020, the Paycheck Protection Program (PPP) was created as a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This program was designed to help businesses, sole proprietors, self-employed workers, nonprofit organizations, and tribal businesses continue paying their workers. The $669 billion business loan program consists of low-interest, private loans that could be forgiven in the future.

What Does the Second PPP Round Mean?

In December 2020, the $900 billion relief act was signed to grant an additional $284 billion in funding for aid through the CARES Act. Those impacted by the pandemic who either did not apply for the first round or who have exhausted their first round of funding can apply for this second round. 

First Draw PPP Availability

In consultation with the United States Treasury Department, the Small Business Administration (SBA) reopened the PPP for first draw applications January 11, 2021. The SBA is currently accepting First Draw PPP loan applications from participating lenders. If you are looking to apply for a First Draw PPP, Lender Match can connect you to a lender. Applications will be accepted for first draw loans until March 31, 2021.

First Draw PPP Loan Details

The PPP was designed as a loan to provide incentive for small businesses to keep their employees on the payroll. First Draw PPP loans can be used to help with funding payroll costs and employee benefits. They can also be used for mortgage interest, utilities, rent, worker protection costs, uninsured property damage, as well certain supplier costs for operational expenses.

  • Loans that were issued before June 5, 2020, have a two-year maturity period. Loans issued after June 5, 2020, have a five-year maturity period.
  • The interest rate is 1%.
  • If the borrower submits their loan for forgiveness with the SBA, payments will be deferred until the amount is remitted to the lender by the SBA. If the borrower does not apply for forgiveness, payments will be deferred for ten months.
  • The loan does not require collateral or personal guarantees during the application process.
  • There is no application fee. 

Who Qualifies for a First Draw PPP?

Any entity that has been affected by the COVID-19 pandemic may be eligible for the First Draw PPP loan. The following entities are considered for qualification:

  • Self-employed, independent contractors, sole proprietors 
  • Small businesses that meet SBA size standards
  • Any qualifying non-profit organization, veterans organization, or tribal business concern with greater than 500 employees or meeting the SBA industry size standard if more than 500 employees
  • Any business with a NAICS code beginning with 72, with more than one physical location and employs less than 500 per location

Second Draw PPP Availability

The SBA began accepting Second Draw PPP loan applications on January 13, 2021.At least $25 billion is being set aside for Second Draw PPP Loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods.

Applications will be accepted until March 31, 2021.

Second Draw PPP Details

Much like the First Draw PPP Loans, the general loan terms are the same. The funds from the Second PPP Loan can be used to fund the same expenses as before too.

The most significant change is the loan maximum. A business can receive up to 2.5x its average monthly payroll costs, but for the second draw, these loans are capped at $2 million. Previously, the cap was at $10 million. For borrowers in the food service or hospitality industry, loans can be 3.5x of payroll costs but still capped at $2 million. 

Who Qualifies for the Second Draw PPP?

A borrower may be eligible for a Second Draw PPP Loan if they meet the following eligibility:

  • Previously received a PPP Loan and will or has exhausted the full amount for qualified expenses
  • Has no more than 300 employees
  • Can show at least a 25% reduction in gross receipts between comparable quarters in 2019 versus 2020 

PPP Loan Forgiveness

Borrowers who have a First or Second Draw PPP Loan may be eligible for forgiveness through the SBA. Before applying for forgiveness, you will have to have used up the funds in their entirety. Knowing that, you can file for forgiveness anytime before the maturity date of the loan.

If the borrower doesn’t apply for forgiveness within 10 months of the last day of the covered period for the PPP loan, they will be required to make payments to their lender. Lenders accepting loan forgiveness applications can be found here.

First Draw PPP Forgiveness Terms

The First Draw PPP borrowers may be eligible for forgiveness during the 8 to 24-week covered period after the loan’s disbursement if:

  • The employees and compensation levels are maintained close to what they were before the pandemic
  • At least 60% of the loan was spent on the payroll and the remaining 40% on qualifying expenses

Second Draw PPP Forgiveness Terms

The Second Draw PPP borrowers may be eligible for forgiveness during the 8 to 24-week covered period after the loan’s disbursement if:

  • The employees and compensation levels are maintained in the same manner they were with the First Draw PPP
  • At least 60% of the loan was spent on the payroll and the remaining 40% on qualifying expenses

How To Apply For Forgiveness

The PPP lender you are working with can supply you with the correct SBA forms (SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or Lender equivalent) for forgiveness

  1. Contact your lender and complete the form required
  2. Compile documentation regarding expenses: payroll and non-payroll
  3. Submit the form and documentation to the PPP lender
  4. Continue to discuss the status with your lender until approved or denied. If denied, seek out the appropriate appeal process.

Those who are self-employed with no other employees or only borrowed a small amount could qualify for the EZ and S forms. Your lender will let you know if you’re eligible for these shortened versions of the application.

What to Do Until You Get Approved for a PPP Loan

If you’re waiting to find out if you have been approved for a First or Second Draw PPP loan, know that there are other options to help support your business.

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