As we previously blogged, Congress established the Paycheck Protection Program (PPP) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This program was designed to help businesses negatively affected by COVID-19 continue to pay their employees. On December 27, 2020, the PPP was extended to allow 1) new first-time borrowers, and 2) an opportunity for previous borrowers to have a “second draw.”
The Small Business Administration (SBA) started to accept applications from all lenders on January 19. This guide will help business learn the differences between the original PPP and the new “second draw” program
Who Is Eligible?
Only businesses with fewer than 300 employees that were in operation on February 15, 2020 qualify for a second-draw PPP loan. Additionally, although permanently closed business do not qualify, temporarily closed businesses can still apply.
To receive a second loan, borrowers must have fully spent their first PPP loan on permitted expenses (e.g., payroll, mortgage interest, rent, utilities, employee health insurance costs, etc.). Businesses may still apply for a second-draw PPP loan even if they haven’t already spent their first-draw loan proceeds. Their loans just won’t be disbursed until their first loan has been fully spent.
Finally, borrowers must show that they experienced a 25% reduction in gross receipts in any quarter of 2020, when compared with the same quarter in 2019.
Differences Between First and Second-Draw PPP Loans
- First-draw PPP loans were capped at $10 million, whereas second-draw loans are capped at $2 million.
- Whereas first-draw borrowers merely had to make a good faith certification to meet the revenue reduction qualification, second draw borrowers must provide documentation if they apply for forgiveness.
- The list of permitted uses for second-draw loans has been expanded to include:
- operations expenditures;
- repair to damage caused by riots and protests;
- supply costs;
- covered worker protection expenditures; and
- PPE and modifications necessary for COVID-19
- To get forgiveness, at least 60% of second-draw proceeds must be spent for the above listed permitted reasons in the “covered period,” which is the 8-to-24-week period following loan disbursement.
Follow us on: