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The Second Draw of PPP Loans is Here: Everything You Need to Know

The U.S. Treasury Department has reopened Paycheck Protection Program (PPP) loans to eligible employers. The PPP loan forgiveness program, enacted by the Small Business Administration (SBA), provided economic relief to small businesses affected by the pandemic. Eligible businesses were able to use their PPP loans to pay for mortgages, payroll, utilities, and more. Despite this relief, many small businesses continued to struggle during these trying times. At the end of 2020, in an effort to assist these businesses further, congress passed another COVID-19 relief bill. That bill allotted $284 billion to go towards the PPP. This allowed the SBA to give businesses another chance to apply for PPP loans or obtain a second PPP loan, which is called the Second Draw PPP loan.

How it All Started

On April 2, 2020, the U.S. Small Business Administration (SBA) posted an interim final rule. This rule announced the implementation of the CARES Act, which added the PPP program to the SBA’s loan program. Once made public, many business owners jumped on the opportunity and applied for PPP loans. In the beginning, $349 billion was allocated towards PPP loans; however, the SBA quickly ran out of funding due to high demand. After learning that the SBA needed more money for small businesses, they were allotted an additional $349 billion. This ended up going towards state institutions, federal credit unions, community financial institutions, and more. Overall, the SBA estimates that over 4 million loans were given out in the year 2020. 

Although millions of business owners received PPP loans in 2020, there were still businesses that needed additional help to stay afloat. Therefore, at the end of 2020, the SBA and Department of Treasury implemented the Economic Aid Act which further helps small businesses and nonprofits. In addition, the SBA and Treasury Department created the Second Draw PPP loan for small businesses. 

When Can Businesses Apply and Where?

As of January 13, 2021, small businesses were able to apply for a second PPP loan; however, you can only apply until March 31, 2021. That being said, it’s wise to start looking into the requirements now if you require this additional financial assistance. Small businesses may apply for the loan on the SBA website

Who Qualifies for a PPP Loan?

Any business owner can apply for a PPP loan whether it’s their first time applying or second.

The Second Draw PPP and First Draw PPP loans are subject to nearly the same terms: 

  • No collateral requirement
  • The SBA will not guarantee any loans
  • Loans are processed by lenders under delegated authority
  • Interest rates will be 100 basis points (1%)
  • The maturity is 5 years

Also, under the Economic Aid Act, more organizations are eligible for PPP loan help. Organizations such as housing cooperatives, 501(c)(6) organizations, destination marketing organizations, or nonprofit news organizations are now able to apply for a First Draw PPP loan. Legal gambling businesses, certain electric cooperatives, telephone cooperatives, and certain hospitals are now also eligible for First Draw and Second Draw PPP loans. 

The First Draw loans are for first-time borrowers, and the Second Draw loans are for those who’ve already received a first PPP loan. Please note that a borrower can apply for a second PPP loan before they use all of the funds from their first PPP loan; however, you can’t actually access your Second Draw loan money until you use all of the funds from your First Draw.

Please note that if you want to apply for a PPP loan, you must meet the SBA size standards. Any business that needs financial assistance from the SBA must meet the “small business” requirements, meaning that your business must be of a certain size to be eligible for help. You can read more about size standard calculations here.

First Draw PPP Loan Information

If you haven’t applied for a PPP loan in the past, you’d qualify for a First Draw PPP loan. The first PPP loan can be used for payroll costs and employee benefits. You may also use the PPP loan to cover your mortgage, rent, utilities, and other costs related to COVID-19. Just like the Second Draw PPP loans, you can apply for your First Draw PPP loan until March 31, 2021. 

To qualify for the First Draw PPP loan, you must meet these requirements:

  • You are a sole proprietor, independent contractor, or self-employed. 
  • A business must meet SBA’s size standards (industry size standard or alternative size standard). 
  • Any business such as a 501(c)(3) nonprofit organization, 501(c)(19) veterans organization, or tribal business concern. You must have no greater than 500 employees. Or, you have to meet the SBA industry size standard if over 500. 
  • If you’re a business with a NAICS code that begins with 72, that has more than one physical location, and has less than 500 employees (per location).

Second Draw PPP Loan Information

You may apply for the Second Draw PPP loan if you applied for a PPP loan previously. Additionally, a borrower is generally eligible for a second PPP loan if they had used the full amount of the first loan, have no more than 300 employees, and can demonstrate at least a 25% reduction in gross receipts between quarters from 2019 and 2020. 

According to the SBA, you may use your Second Draw PPP loan to:

Help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operation.

Small Business Administration

In addition to that, the maximum loan amount increased for the second PPP and they also increased their accommodation for foodservice businesses. In general, most borrowers who get a Second Draw PPP loan can obtain up to 2.5x their monthly 2019 or 2020 payroll costs. However, this is capped at $2 million. Any borrower in the Accommodation or Food Services Sector may obtain up to 3.5x their average monthly payroll costs in 2019 or 2020 which are capped at $2 million. 

Thinking About Getting Your First or Second PPP Loan?

If you’re a business owner and need financial assistance, a PPP loan might be the exact thing you need. And, if you follow the loan rules properly, you may be able to earn loan forgiveness! To apply for PPP loans, please visit the Small Business Administration‘s website. Remember, although the deadline to apply is on March 31, 20201, funds may run out before then so you’ll want to act quickly.


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