FAQs About Round 2 Of The Paycheck Protection Program (PPP)
In March 2020, the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act brought much-needed relief to small businesses with the first round of Paycheck Protection Program (PPP) loans. These forgivable loans helped cover payroll expenses, rent, and utilities for small businesses struggling as a result of the pandemic.
Unfortunately, funds were depleted and PPP loans were no longer being issued. That is until the passage of legislation on December 27, 2020, which included additional funding for a second round of PPP funding.
Whether you’ve already been through the PPP application process or you’re searching for funding for the first time, this post is for you. We’re going to cover the most frequently asked questions surrounding the second round of PPP funding. We’ll cover topics such as the requirements you must meet to receive a loan, how funds can be used, and whether you can receive another PPP loan if you already received one (spoiler alert: you can!)
Keep reading to find the answers to your questions about PPP loans. Get your PPP FAQs, here:
When is the deadline to apply for a PPP loan?
Applications for Round 2 of PPP loans opened the week of January 11, 2021. The deadline for applying for a PPP loan was extended to May 31, 2021, but the SBA announced on May 5, 2021 that general funds for the program were depleted.
How much money can I get from the PPP?
Borrowers can receive a PPP loan equal to 2.5 times average monthly payroll costs in 2019 or 2020. Borrowers in the accommodations and food services sectors can receive loans equal to 3.5 times average monthly payroll costs in 2019 or 2020. Maximum borrowing amounts are capped at $10 million for first-time borrowers and $2 million for borrowers taking a second loan.
Am I eligible for a PPP loan?
There are a few requirements for receiving a PPP loan. If this is your first PPP loan (first draw), you are eligible if you meet the size standards of the Small Business Administration (SBA). For most industries, this is 500 or fewer employees. If you have multiple business locations, you may still qualify provided each location meets the SBA’s size standards. Different size limitations may apply to specific industries.
If you are applying for a second PPP loan (second draw), the size standards are tightened up. You may not have more than 300 employees. For businesses with multiple locations, each location must have 300 or fewer employees.
Businesses applying for a second draw must also show a reduction of at least 25% in gross receipts between comparable quarters in 2019 and 2020.
Whether you’re taking your first or second draw, all eligible businesses must have been in operation prior to February 15, 2020.
Are sole proprietors eligible for a PPP loan?
Sole proprietors may be eligible for a PPP loan. To be eligible, your principal place of residence must be in the U.S. and you had to have filed or will file a Form 1040 Schedule C for 2020. If you’re in a partnership, you’ll treat each partner’s income as a payroll cost.
While you can get a PPP loan as a sole proprietor, be aware that filing for one may complicate any state unemployment claims you currently have.
Where can I apply for a PPP loan?
There are a number of banks and lenders that are or will be accepting applications for the second round of PPP loans. If you previously received a PPP loan, you can apply for a second loan with your original lender. Currently, there are no rules prohibiting you from selecting another lender for your second loan, if you so choose.
If you’re new to PPP loans, you can start your search with your own bank or financial institution. You can also explore other banks and credit unions in your area. And don’t just look to the big lenders — many borrowers in the first round found great success working with smaller, lesser-known lenders.
You can even find an online lender that simplifies the application process. Why go to your local bank when you can check out these online lenders that offer PPP loans from the comfort of your home or office?
Are third party loan matching services safe and trustworthy?
Whether or not loan matching services are safe and trustworthy for PPP loans generally correlates to whether they’re trustworthy for loan matching in general. If you’re going to work with a matching service, do your due diligence and make sure they have a good reputation, and seek out detailed reviews of the services in question. Keep in mind that even the good services will not be able to match you with a lender if you don’t meet PPP eligibility requirements.
Additionally, you should never pay money to file your PPP loan application.
Can I hire somebody to complete my PPP application for me?
You can “hire” an authorized loan agent to help you with your application. According to guidance released, this person can be one of the following:
- An attorney
- An accountant
- Someone who prepares an applicant’s application for financial assistance and is employed and compensated by the applicant
- Someone who assists a lender with originating, disbursing, servicing, liquidating, or litigating SBA loans
- A loan broker
- Any other individual or entity representing an applicant by conducting business with the SBA
Note that agents are not to be paid by the applicant for this service. Agent fees are to be paid out of lender fees, with the lender paying the agent. Compensation is set by the SBA and ranges from 0.25% to 1% depending on the size of the loan.
Is it ok to apply with multiple lenders?
Yes, you can apply with multiple lenders. Keep in mind, however, that you don’t want multiple applications to be submitted to the SBA from multiple lenders as this could look like fraud. If you do apply with multiple lenders, make sure to ask your lender to inform you when they submit your application to the SBA so you can cancel your other applications. And whatever you do, don’t accept multiple PPP loans on the same draw.
Do I need a business checking account to apply for a PPP?
The PPP program itself does not require that you have a business checking account, but your lender may try to insist that you have one. If you don’t have a business checking account and your lender’s policy demands one, you may want to work with another lender, consider opening a business check account, or seeing if your lender is willing to accommodate you (this is more likely if you have a longstanding relationship with your lender).
Can I apply for a new PPP loan if I already got one?
If you received a PPP loan in the first round, you may qualify for a second draw provided you meet certain conditions. In order to receive a second draw, you must meet the following requirements:
- No more than 300 employees
- Funds from the first draw have been or will be spent on authorized expenses
- Must have had at least a 25% reduction in gross receipts during comparable quarters in 2020 relative to 2019
If your business has multiple locations, you may still qualify for funding provided each location has 300 or fewer employees. Publically traded businesses or businesses with strong ties with the People’s Republic of China (including Hong Kong) are ineligible to receive PPP loans.
In some cases, you may be able to modify your original loan application if all or a portion of loan funds were not accepted. Talk with your lender to find out if you qualify.
What’s the difference between the First Draw and Second Draw PPP loans?
Businesses that are taking a first draw for the second round of PPP funding did not previously receive a PPP loan. If a business did not accept all or a portion of a loan in the first round of funding, they may be able to modify their original applications for a first draw.
If a business previously received a PPP loan and accepted the full amount, they may qualify for a second draw — in other words, a second loan.
There are a few key differences between the first and second draw in terms of how to qualify. To qualify for a second draw, businesses must have 300 or fewer employees. For a first draw, the requirement stands at 500 or fewer. There may be some size standard exceptions based on your industry.
Borrowers applying for a second draw must also demonstrate a reduction of at least 25% in gross receipts between comparable quarters in 2019 and 2020.
Does my first PPP loan have to be forgiven to get a second one?
Your first PPP loan does not have to be forgiven in order to qualify for a second one. However, you must have already spent or plan to spend all funds from your first loan in order to qualify for a second draw.
My lender says I have to wait eight weeks between First Draw and Second Draw loans. Is that true?
Yes, you effectively have to wait eight weeks between your first and second draws. The reason for this is that SBA requires all of your first draw funds to have been spent before you can get a second, and each PPP loan is presumed to cover at least eight weeks. We say “effectively,” because the interim final guidance released by the SBA on March 17, 2021 contains language that makes it sound as though it’s possible to certify that the funds will (in the future tense) be spent. So there’s some gray area here, but we would expect that most lenders will abide by the conservative interpretation.
I’m eligible for more money under new PPP rules. Can I reapply to receive the difference?
You can amend your application up to the point that funds are deposited into your account. After that, your options become more limited. There are a handful of instances in which you may be able to get your loan increased by submitting a request through the SBA’s E-Tran servicing site–these mostly apply to applicants who are filing as sole proprietors/partners or contractors. Some applicants who had previously returned their funds or were offered more than they received may also be able to submit a request.
What is a CFI and am I eligible to apply through a CFI?
A CFI is a Community Financial Institution. CFIs include Community Financial Development Institutions (CDFI), Community Development Corporations (CDC), Minority Depository Institutions (MDI), and Microlender Intermediaries. Many CFIs are accepting PPP loan applications.
Applications from CFIs are being prioritized by the SBA. These applications will be the first in the second round of PPP funding to be accepted and processed by the SBA.
CFIs work with underserved businesses and communities. Allowing these lenders to submit applications first can help many businesses — particularly those that didn’t receive funding in the first round — get a PPP loan in this round.
You may be eligible to apply through a CFI if your business is located in a rural area or underserved community. Smaller businesses requiring smaller loans and businesses owned by women or minorities may also be eligible to apply. Contact CFIs in your area to find out if you’re eligible.
There are errors in my application. What can I do?
Your best option is to fix the errors before your lender submits your application to the SBA. Unfortunately, there doesn’t appear to be any consistent and foolproof way to correct errors after the SBA has received the application. Your best bet is to work with your lender and look into filing a Lender Certification for Reinstatement or Correction of Paycheck Protection Program (PPP) Loan form.
What is the timeline to get a PPP loan? Is there any way to speed up the process?
The timeline to get approved for a PPP loan varies by lender. Once you’re approved, the SBA requires lenders to disburse funds within 10 calendar days. Some borrowers report frozen accounts or holds that delay their processing. The best way to avoid a hold is to make sure you’ve provided all the documentation your lender might need. Also double and triple-check your application to make sure all of your information is correct and up-to-date to reduce your chances of getting stuck halfway through the process. If there is a problem, get in touch with your lender.
Remember that this is an extremely popular program and that many lenders are overwhelmed with applications.
My PPP loan was approved but I still haven’t gotten my money in the promised time frame. Will I still get my money?
The SBA allows up to 20 days for funds to be disbursed, after which the lender has to cancel the loan. If your loan has not be disbursed within that time, something went wrong along the way.
My loan was approved, but isn’t progressing. Can I release the application and apply with a different lender?
You can release your application up until the point your loan is approved. Once it’s approved, you’ll trigger a rejection from the SBA because another application has been submitted. If you’re going to try multiple applications, make sure you’re in good communication with your prospective lenders so that you’re able to withdraw your other applications before they’re submitted.
What do these PPP status terms mean?
The status terms you encounter when you apply for a PPP loan may vary depending on your lender. If you want an example of what these terms might mean, Womply provides a detailed explanation of the statuses it uses.
How do I check the status of my PPP loan?
You can check the status of your PPP loan by either contacting your lender or the SBA. You can read more about how to go about this in our How To Check The Status Of Your Paycheck Protection Program (PPP) Loan Application feature.
My application was denied because of low credit. What do I do?
The SBA has suspended credit requirements for PPP loans, so technically you shouldn’t be rejected due to credit. However, some lenders reportedly are denying applications based on credit score. Since this is happening at the lender level, your best bet is to try a different lender if you’re rejected.
How can I use my PPP funds?
For the second round of PPP funding, there are a number of ways you can spend your funds to receive loan forgiveness. Similar to the first round, you may receive loan forgiveness by using your loan to cover payroll expenses, mortgage or rent payments, or utilities.
With round two, there are additional qualifying uses for PPP funds. Funds can be used to purchase personal protective equipment for employees or to cover other expenses related to government-imposed COVID-19 restrictions. Funds may also be used to pay for software or cloud computing services used for inventory, accounting, record keeping, human resources, or supply tracking. Supplier costs necessary for the operations of the business are also covered. Finally, businesses that were impacted by riots or other civil unrest that did not have damages covered by property insurance or were not already compensated in other ways may use PPP funds to cover the costs of damages.
One last thing to keep in mind is that in order to receive full loan forgiveness, at least 60% of funds must be spent on payroll expenses.
Can I use PPP funds to pay myself?
Yes, you can use PPP to pay yourself through the owner compensation replacement clause.
Do the new loan usage guidelines apply to first draw PPP loans?
The expanded loan usage guidelines apply to all loans in the second round of PPP funding. This means that first draw PPP loans and second draw PPP loans may be used toward these new qualifying expenses.
How do I apply for forgiveness?
You can apply for loan forgiveness once you have used all funds that you want to have forgiven. This can be all or a portion of your loan. Remember, to receive full loan forgiveness, you must have spent your loan on qualifying expenses, and at least 60% of loan funds must have been used for payroll expenses. You must also maintain your employee headcount and not decrease any employee’s salaries or wages by more than 25%; otherwise, your amount of loan forgiveness will be reduced.
When you’re ready to apply for loan forgiveness, contact your lender to receive the correct loan forgiveness application. If you meet specific conditions, you may be eligible to fill out a shortened version of the application.
In addition to your application, you will also need documentation supporting how loan funds were spent. This includes but is not limited to bank account statements, tax forms, receipts, canceled checks, or invoices. This documentation will be submitted to your lender along with your forgiveness application.
After you have completed your application and compiled your documentation, this packet will need to be submitted to your lender. Make sure to communicate with your lender throughout the process to determine the status of your application, if more documentation is needed, or if you have any questions about the process. Your lender will let you know if your application was accepted, the amount of loan forgiveness, and any loan amount that was not forgiven. If all or a portion of your loan is not forgiven, your lender will provide you with information on when you need to start repaying your loan.
One final thing to note is that your loan forgiveness application should be submitted prior to the maturity date of your loan. If you do not apply for loan forgiveness within 10 months of the last day of your covered period, your loan will no longer be deferred and you will need to start making payments.
Is PPP forgiveness going to be automatic?
While Congress is pushing for smaller loans to be automatically forgiven, there is no legislation in place as of yet. The SBA has simplified the loan forgiveness application for smaller loans, offering some relief to borrowers. We will continue to publish updates if legislation is passed in the future.
How do I return my PPP loan?
You can cancel your application up until the time the funds land in your account, but after the Safe Harbor exemption expired in 2020, you can no longer “return” your PPP loan. However, there is no prepayment penalty for PPP loans, so there’s nothing stopping you from immediately paying off the loan with the lump sum you receive.
Do the new tax deduction rules apply to the first round of PPP funding?
Initially, expenses paid for with PPP funds could not be claimed as deductions on income tax returns. Fortunately, Congress made a change in December 2020 that now allows expenses paid for using the second round of PPP funds to be deducted from a business tax return. Note: This new tax deduction rule does apply to the first round of PPP funding.
Tax time is approaching, and the new changes can be overwhelming to any small business owner. Make sure to check out How PPP Loans & EIDL Advances Will Affect Your 2020 Taxes before you file.