Paycheck Protection Program Second Draw: what to know

On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 to help small businesses and workers across the country recover from the devastating effects of COVID-19. Along with more stimulus checks, the new bill includes a second round of the Paycheck Protection Program (PPP). 

While PPP funding was available to small businesses when it was first launched through the CARES Act, many businesses were left in the dark due to complications the first bill presented. 

The new legislation aims to make the process easier for businesses who wish to receive the funding for the first time, as well as those who already receive a PPP loan but are eligible to get more funding in this second round. 

Note: The deadline to apply for this round of PPP funding is March 31, 2021.

What is the Paycheck Protection Program? 

The PPP is a program that allows certain lenders to administer SBA loans to small businesses that have been impacted by COVID-19. Businesses can use the loan amount for a chosen covered period of 8 to 24 weeks after the loan request is fulfilled. 

The funding can be used for payroll costs and other operational expenses, and the new bill expanded its use to include group health insurance benefits. These include life insurance, disability benefits, vision, and dental insurance. 

First-draw loan limitations

If you did not receive PPP funding during the first round, the maximum amount you can receive is the lesser of: 

• 2.5 times the average monthly payroll costs and healthcare costs
• $10 million

Second-draw loan limitations

If you already received PPP funding, you’ll face several more limitations than businesses that are receiving a loan for the first time. 

Second-draw applicants can receive the lesser of: 

• 2.5 times your average monthly payroll costs and healthcare costs in the calendar year or the year before you receive your loan. 
• If your business is classified under Code 72 by the North American Industry Classification System, you can receive 3.5 times the average monthly payroll costs and healthcare costs in the calendar year or in the year before you receive your loan. You can find a full list of Code 72 businesses, which fall under the hospitality and entertainment industries, here. 

• $2 million

Who is eligible for PPP Second Draw? 

Eligibility requirements vary depending on whether or not you received funding in the first round. However, your business must fall into one of the following buckets to be eligible for first- or second-round draws: 

• Sole proprietorships
• Self-employed individuals
• Independent contractors 
• Seasonal employers who operate no more than 7 months within a year or do not have more than a third of gross receipts within a 6-month period
• Certain non-profit organizations
• Faith-based organizations with 150 or fewer employees
• Housing cooperatives with less than 300 people

You are not eligible if your business falls under one of the following categories: 

• Lobbying organizations or organizations involved in political activities
• Financial services
• Cannabis businesses 
• Businesses that employ household workers like housekeepers or nannies
• Businesses that have defaulted on SBA or federal loans
• Entities that have an owner with at least 20% ownership interest who is currently incarcerated, on probation or parole, or facing indictment. 
• Businesses that have an owner who has been convicted of a felony in the last 5 years

First-draw PPP loan eligibility requirements 

In order to be eligible for first-draw PPP funding—meaning you did not take any funding during the first round of the program, you must have less than 500 full-time, seasonal, and part-time employees. 

Your business must also have been in operation since February 15, 2020, and it must currently be operational. 

Second-draw PPP loan eligibility requirements

Eligibility requirements get a little more specific if you are trying to get a second PPP loan. Instead of 500, you must have less than 300 full-time, seasonal, and part-time employees. And if you have more than one location, there may not be more than 300 employees at each location. 

Your business must also have been operational since February 15, 2020, and is currently operational today. 

You’ll need to be able to prove that you lost at least 25% in revenue in the first, second, or third quarter of 2020 when you compare it to the same quarter in 2019. You’ll also need to show that your original PPP loan has run out, or that you plan to use the entire loan. 

What are the Paycheck Protection Program loan terms? 

Regardless of whether or not you already received a PPP loan or if this is your first time, all loans have a fixed interest rate of 1%. According to the new bill, the rate is non-compounding and non-adjustable for everyone. 

Your PPP lender may not: 

• Charge annual or guaranteed fee
• Charge a prepayment penalty
• Request some type of collateral or personal guarantee

The deferral period lasts until it is determined what your PPP loan forgiveness amount will be. In other words, you will not be required to make any payments until you know how much of your funding will be forgiven. However, if you fail to submit a loan forgiveness application form, you’ll need to begin making payments within 10 months of the last day of your covered period. 

The maturity of a PPP loan is five years.

What do I need to know about the covered period? 

You must use the funds during your covered period in order to be eligible for any type of forgiveness. It’s also important to note that if you have already received funding, your covered period remains the same for that loan. 

All loan applicants, regardless of first- or second-draw status, can choose a covered period of from 8 to 24 weeks after you receive your loan. 

During this time, it’s very important that you spend the funding only on covered expenses. Take a look at this breakdown of what’s covered for each category of borrower. 

You must spend at least 60% of the funds on: 

• Employee payroll costs
• Group health insurance payments
• Dental and vision plans
• Disability benefits
• Life insurance
• Owner compensation costs

Note: If you borrowed money during PPP Round 1 and your loan has been forgiven, you may not use the funds to cover disability benefits or life insurance. 

All loan recipients can spend 40% or less of the loan on: 

• Employee paid time off and leave 
• Pension and retirement plans 
• Federal income and FICA taxes
• State unemployment insurance
• Rent, utilities, and mortgage interest 

First-draw borrowers of round 2, second-draw, and first-draw recipients whose loans have not yet been forgiven may also spend 40% or less of the loan on: 

• Software or cloud services that are needed for business operations
• Repairs of property damage, vandalism, or looting due to unrest that occurred in 2020
• Supplier costs essential to the operations of the business 
• COVID-19 related PPE, business equipment, or other measures that help the business comply with federal and state guidelines. 

How do I apply? 

You can apply for the Paycheck Protection Program through any lender approved by the SBA beginning January 11. For many businesses, you’ll be able to work with your bank. For businesses whose banks are not processing PPP loans, you’ll need to find another lender.

The SBA provides a list of all approved lenders. Additionally, Homebase is working with a number of partners to help you access the PPP Second Draw funds. We will provide a link to allow you to start your PPP application as soon as it becomes available. We will also monitor the developments of the program and share it with you so that you’re always informed. 

What if I don’t qualify for the Paycheck Protection Program? 

You may have other options thanks to the new bill if you don’t qualify for PPP funding. The Consolidated Appropriations Act, 2021 provided more capital into the following funding programs: 

• Economic Injury Disaster Loan (EIDL)
• Community Development Financial Institutions (CDFI) and Minority Depository Institutions (MDI)
• Microloans
• Grants for venues and theaters
• SBA 7(a) loans

You can also check out our financial resource center to learn more about available loans and grants in your area.

Remember, this is not official legal advice. If you have questions or concerns about the guidelines of the PPP, consult an attorney.