Round 2 PPP Loans Explained: Rules, Requirements, & Where To Apply
On December 27, 2020, a $900 billion COVID-19 relief package was signed into law as part of the larger omnibus bill funding the federal government. This bill includes $284 billion in new funding for the Paycheck Protection Program (PPP), the federal loan program established in March 2020 as part of the initial COVID-19 relief package known as the CARES Act.
While this latest relief package adds the funding necessary to restart the PPP loan program, it also adjusts the rules for eligibility and for how loan proceeds must be used in order to qualify for forgiveness. In this article, we’re going to explain the updated eligibility and usage requirements for Paycheck Protection Program loans.
Keep on reading to find out how your business can benefit from the revived Paycheck Protection Program.
Table of Contents
PPP Loan Eligibility Requirements
Let’s examine the eligibility requirements a business must meet in order to qualify for a PPP loan.
To qualify for a first-time PPP loan, your business must have 500 or fewer employees. As you’ll see below, the rules are different if this is your second time receiving a PPP loan.
Previous PPP Loans
If you applied for and received a PPP loan during the first round of funding that ended last August, you are still eligible to receive another PPP loan this time around. However, there are caveats to this.
To qualify for a second PPP loan, you must have used all the funds you received from your first PPP loan. However, you are still eligible to receive a second PPP loan if your first loan has not yet been forgiven or paid off.
Additionally, your business must have 300 or fewer employees to qualify for a second PPP loan — a more stringent limit than that which allies to first-time PPP borrowers. However, certain food services businesses with more than 300 employees and multiple locations may still be eligible for a second PPP loan if each location employs 300 or fewer employees.
Another requirement for those taking out a second PPP loan: you must be able to show that your business has experienced a 25% decline in gross revenue in any 2020 quarter compared with the same quarter in 2019.
Furthermore, publicly-traded companies are not eligible to take out a second PPP loan.
Credit Score Requirements
Just as with the first round of funding, there are no credit score requirements you must meet in order to qualify for a PPP loan. Now, it turns out that some PPP lenders did take into account an applicant’s credit profile for the first round of PPP loans, so depending on the PPP lender to which you apply, your credit score may unfortunately still be taken into account when your application is assessed. However, this isn’t the case with all PPP lenders, and the fact remains that there are no formal credit score requirements in the PPP program, so even if you have bad credit, I’d encourage you to apply for a PPP loan if you meet the other eligibility requirements.
Time In Business
To qualify for a PPP loan, your business must have been in operation prior to February 15, 2020.
Loan Size Limits
The maximum amount of your PPP loan is 2.5 times your average monthly payroll costs in the fiscal or calendar year prior to the time of your loan application, up to a cap of $2 million (down from $10 million in the previous funding round). However, for hotels and restaurants, the rules are slightly different — your maximum PPP loan amount is 3.5 times your average monthly payroll costs, though your maximum limit is still $2 million.
One new requirement for PPP eligibility is that a business must not have significant operations in the People’s Republic Of China (including Hong Kong) to be eligible for a PPP loan. It is currently unclear exactly how significant these ties must be before a business is disqualified from PPP relief.
What’s more, the new PPP funding bill repeals the previous requirement that PPP borrowers deduct the amount of any Economic Injury Disaster Loan (EIDL) advance from their PPP forgiveness amount.
Unlike other loans, you can already have an existing line of credit open and still qualify for the PPP loans, and you can already have loans with the SBA and still qualify.
The last day you can apply for a PPP loan is March 31, 2021.
First VS Second Draw PPP Loans
We’ve touched on this subject, but let’s review the most significant differences between the first and second draw PPP loans. While you could borrow a maximum of $10 million (depending on your payroll) for the first draw, the limit has been lowered to $2 million for the second draw.
Likewise, for a second draw, your business must have experienced a 25% decline in gross revenue in any quarter of 2020 compared with the same quarter in 2019. This requirement did not exist for the first draw (though you did have to demonstrate that COVID-19 was hurting your business). Likewise with the new requirement that your business does not have significant operations in China (including Hong Kong).
Also, the loan forgiveness process has been greatly simplified this time around for those borrowing $150,000 or less. We’ll discuss PPP loan forgiveness in a moment.
PPP Loan Usage Guidelines
Second draw PPP loans have a $2 million ceiling (note that first draw PPP loans still have a $10 million dollar ceiling). Businesses will qualify for an amount 2.5 times the average from the last 12 months of payroll. For example, if the average monthly payroll is $30,000, that small business will qualify for $75,000 in Paycheck Protection loans. These loans are capped at a 1% interest rate for the life of the loan and have a five-year loan term. (Side note: If your business hasn’t been operational for a full year, the government provides alternative ways to measure average payroll.)
One exception to this: hotels and restaurants will qualify for 3.5 times the amount of their last 12 months of payroll, though their maximum loan amount is still $2 million.
PPP loans are designed to cover payroll costs, including salary, wages, retirement contributions, vacation/sick leave/family leave, and group health premiums. There are also provisions to cover rent, mortgage interest, utilities, or other interest on debts.
Forgivable expenditures have been expended to include necessary software and supplier costs, COVID-related worker protection measures such as PPE and plexiglass barriers, and property damage related to riots and civil unrest.
Be aware that in order to be eligible for full loan forgiveness, you must spend at least 60% of your funds on payroll over a period of either eight or 24 weeks (your choice). Businesses must cover and guarantee payroll first for a minimum of eight weeks, after which the remaining money can be spent on the other expenses I mentioned. Forgivable expenditures have been expended to include necessary software and supplier costs, COVID-related worker protection measures such as PPE and plexiglass barriers, and property damage related to riots and civil unrest.
These loans are also extended to independent contractors, gig economy workers, sole proprietors, and tribal businesses. They cover an employee’s salary up to $100,000. This means that if an employee makes over $100,000, they can receive payment up to that amount; any overages are not covered under PPP loans.
Things To Keep In Mind
It’s essential to understand that the loan will only be forgiven if the borrower follows the guidelines outlined in the CARES Act. The Paycheck Protection Flexibility Act passed in June updated some of the original guidelines. One of those stipulations is that your company maintains the same number of employees during the covered period as it did during the previous year. In basic terms: You cannot qualify for loan forgiveness if you lay off your employees.
Where To Get A Paycheck Protection Program Loan
Local lenders will be providing these loans, so check with your lending institution to make an appointment when PPP lending officially begins again. To prepare, use this helpful checklist from the US Chamber of Commerce. You’ll also want to check out our list of 6 lenders currently offering second round PPP loans.
At the moment, there are over 1,800 banks and lenders preapproved with the SBA to help meet the need and respond to the latest rush of applications. And yes, there will be a rush, so get all your information ready now and be prepared to apply when applications start getting accepted again. Experts say it’s best to go through an FDIC-insured bank (other lenders might be brokering for a fee — best to go right to the source), and anecdotally, small banks and credit unions have had better success.
Another option is to work with a matchmaker; many of those lenders are working around the clock on COVID-related funding. As a next resource, check out the SBA Preferred Lending Partners.
Here are three lending vendors that will be offering Paycheck Protection loans:
Lendio is also a loan matchmaker and will work on your behalf to aggregate loan options. Links to apply for PPP loans will available on Lendio’s site. Lendio makes it easy to apply and compare options, and it advertises funding within 24 hours. Due to the terms of the CARES Act, there are no fees for the borrower.
Credibly has funded small businesses with over $1 billion and is equipped will be ready to assist with PPP loan applications. Customer service is efficient and will be able to walk first-time borrowers through the process with efficiency.
BlueVine is an online lending service dedicated to helping small business owners conquer their borrowing struggles. As with the first funding round, BlueVine will be assisting with PPP loans and working diligently with businesses to submit paperwork to the SBA and secure funds. With a big pivot, Blue Vine is making PPP loans a priority and is a valuable option. Lending information is available on the front page of BlueVine’s website.
Fundera is a popular matchmaking service that pairs applicants and lenders from its pool of partners. If you apply for the PPP through Fundera, the same principle applies: Fundera will shop your application amongst its network of SBA-approved lenders. Considering some of the bottlenecks applicants have run into with traditional lenders, this may not be a bad option for businesses that want to maximize their chances of getting their application through the rush.
More About PPP Loans
No matter where you ultimately choose to apply, it’s important to get your payroll information ready and be one of the first to jump on the PPP loan train. It is anticipated that this latest round of funding will be quickly depleted. With loan forgiveness options and generous terms, this is a great opportunity, but since the totality of these loans is capped, the need might outweigh the resources, and the key is quick efficiency. May the odds be ever in your favor.
Looking for more resources as we continue to navigate this pandemic? Our coronavirus hub is packed full of useful information for businesses. Have any questions for us? Leave them in the comments, and we’ll help direct you to the right place to find your answer.