The Paycheck Protection Program is beginning a new phase, or, a second-round draw. The latest, and simplified, guidelines for the new PPP loan, highlights the requirements needed to be eligible for the loan. On January 6th, 2017, the SBA issued the new rules for the disbursement of funds, which was authorized in the economic aid act signed on December 27th, 2020.

What’s New with PPP?

For businesses that had not received the PPP loan during the first phase, this may be an opportunity to apply once again. Companies whose revenue was reduced by about 25% in a single quarter of 2020, are also eligible to apply for this new phase of the paycheck protection program. Sole proprietors, other businesses, and independent contractors applying for $150,000 or below loans, are not required to submit any new documentation, provided the application is made using the same lender. 

Under these new guidelines, lenders can request extra documentation from their borrowers if they feel it is necessary to do so.  If you borrow less than $150,000, there is a need to document the revenue reduction when applying for debt forgiveness. The new phase of PPP will be made open when lenders can reestablish the process. The expiration of this process will be on March 31st, 2021. 

When your expected loan exceeds $150,000, there will be a need to show your gross receipts for  relevant documentation upon submitting your application for the PPP second round. According to the new guidelines, you can do this by submitting your tax returns for 2019 and 2020, if they are both available, or you can submit your quarterly financial statement instead. 

Your new bank loans can be calculated in the same way as the first. However, it is capped at about $2million. Additionally, the maximum number of employees you can have in this second phase is 300 instead of the 500 in the first phase.

The Second Round Draw of  the Paycheck Protection Program

However, the terms and conditions of the new PPP second round draw have similar terms and conditions as the first phase. These conditions and terms include a 100%, or 1%, interest rate as a basis point, and you can calculate this using a non-adjustable, or compounding, basis. Other terms and conditions include:

• There is no required form of personal guarantees.
• It requires five years for the loan to mature. 
• The federal government guarantees this loan at 100%
• Authorized lenders process the loans and have the permission to use the borrowers’ certifications to determine whether you are eligible and why you need the loan. 
• You do not require collateral to access the loan.

More info about the New PPP Second Draw Loan

If you are applying for the new PPP loan, you are required to have utilized the entire first tranche of funds before or on the date you are to receive the funds. Businesses that were closed, temporarily, due to the coronavirus pandemic’s effect, are eligible to apply for this new phase. Permanently closed businesses are ineligible for this new PPP loan.

Under the new PPP loan requirements and guidelines, hotels, restaurants, and businesses categorized under NAICS  Code 72, have extra benefits. Owners of these businesses can calculate their eligible loan amount by ensuring that they multiply a month of their payroll in 2019 by a value of 3.5 instead of the initial 2.5. The result of this calculation guarantees that businesses under this category receive more funds. Businesses that began operation in the past year and other seasonal companies also fall under this category. Restaurants and hotels with less than 300 employers, but multiple locations, can apply separately for each of their branches. Such a business cannot exceed the maximum of $4 million across all their locations.

Increased Eligibility of Businesses

According to the expanded Economic Aid Act, there has been an increase in the number of eligible businesses for this new PPP loan. These other businesses are grouped under the 501c organizations, which include religious entities, NGO’s, local news organizations, and chambers of commerce. These loans are pegged at a maximum of $2 million.

Besides, $15 million has been set aside, for this new law, in non-repayable grants, especially live entertainment venues most affected by the pandemic. Businesses under this category include museums, zoos, and theaters. Businesses representing performers are also included in this category. Under this category, eligible businesses must involve live entertainment. Restaurants that offer night performers are ineligible. 

Guidelines for other Categories of Businesses

The SBA has addressed concerns and criticisms that followed the first phase of the PPP loan for women and veteran-owned businesses. There was no initial consideration for minority and women-owned businesses. Neither were there any considerations for companies that had below ten employees, or those located in disadvantaged areas. Only those companies that traded publicly, large businesses, and chains were considered for funding. 

The new guidelines for these new categories of businesses under the second PPE draw include:

• $35 billion for first time PPP borrowers
• $15 billion for both the first and second PPP draw, which is insured by the Farm Credit System, Credit Unions, and Depository Institutions that have consolidated assets that are below $10billion
• $25 billion and $15 billion for both first and second PPP loans draw for businesses with less than ten employees, or moderate-income neighborhood borrowers lending below $250,000, respectively. According to the SBA, about 25% of these set-asides will be provided for any of the above groups. 

The SBA states that it will accept applications for loans from community financial institutions alone for two days after the loan portal’s opening. It also indicated that it would engage in public and community outreach, and other media campaigns, to help promote the program and encourage these groups of businesses to apply. 

SBA outlines for ineligible businesses for the second round of PPP: 

• Any business based in China or businesses with ties to China
• Live entertainment venues that receive grants as enshrined under the Economic Aid Act. 
• Companies that are publicly traded.
• Lobbying companies that are involved in political advocacy
• Businesses owned or controlled by a congress member, the executives, the Vice President, or the President. The above ineligibility holds if these individuals own not less than 20% equity.

Common questions about the new PPP Loan

How does the new PPP Loan differ from the first?

The new PPP loan differs from the first loan in different ways listed below:

Time window: The time frame for this new PPP loan is more flexible and allows you to spend the disbursed funds while still maintaining eligibility for your loans to be forgiven. You can choose any end date that falls between 8-24 weeks.

Maximum loan: The new PPP loan has reduced the amount from the initial $10 million to $2 million. The formula for calculating the loan amount for accommodation and food-based services has increased to 3.5 times the average payroll.

Employee tax credit retention: Unlike the first PPP loan, where businesses were not allowed to claim a retention tax credit on employees, the new PPP loan will enable businesses to receive the loan to claim the 2020 tax credit. 

Wider loan distribution: Unlike the first PPP loan where the minority, small and women-owned businesses were not considered, the new PPP loan has set aside a part of the total loan to these businesses through community development, financial institutions, credit unions, and community banks. 

When can I apply for the New PPP Loan?

You can begin your application for the new PPP loan on January 11th, 2021. Credit unions and community banks will start receiving applications from that date. However, businesses that may choose to apply with larger lending institutions and banks may have to wait a while. As of the time of this write-up, no date has been set for submitting those applications. 

When is the deadline for applying?

The application deadline for the new PPP loan is March 31st. However, it is advisable to apply sooner because you may be out of luck once the $284 billion runs out. Many businesses were left out in the first phase of the PPP loan, although there was more funding afterward but late applications were avoided.

Can I apply again if I already have a loan?

Yes, you can apply again even if you have a loan, but you have to meet the PPP loan requirement to qualify. During the first phase of PPP loans, you only had to certify economic uncertainty for your business to be eligible. In this new phase, you have to show that your business experienced a 25% drop in revenue between any quarters from 2019 to 2020. Another PPP loan requirement is that your employees’ headcount should be below 300.

Does the PPP loan have to be used for payroll?

The PPP loan’s primary purpose is to assist business owners in retaining their employees and cover other important business costs. So you have to utilize a minimum of 60% of your funds for payroll costs. You can use the remaining 40% for non-payroll expenses. If you fail to use your PPP loans for payroll purposes, your loan may end up not being forgiven, which means that you have to repay the loan.  

Are freelancers eligible for the PPP Loan? 

Self-employed individuals, sole proprietors, and other independent contractors are eligible to apply for the new PPP loans. However, you must meet certain PPP loan requirements for self-employed before you qualify for the new PPP loan. You have to be a resident in the United States, and your freelance jobs must have generated income for you. Your self-employed business should have been operational before February 15th of the year in view. You also have to fill out the Schedule C form 1040, and show that the pandemic has affected your business. 

What are the requirements for PPP Loan Forgiveness?

You may be eligible for PPP loan forgiveness if you utilize the funds for payroll costs, utilities, or mortgage payments for your business. Another requirement is that you must have used the funds for such purposes within the eight or twenty-fourth week after receiving the funds. You can apply for loan forgiveness after using all the proceeds of the loan you want to be forgiven, although you can apply anytime until the loan matures. If you do not apply for loan forgiveness within ten months after the last maturity date, then you can no longer defer your PPP loan payments. You immediately have to start repaying your loan to your PPP lender. 

Can I apply for the PPP 2nd Draw Loan Online?

You can apply for the PPP 2nd draw loan online. The online application can be carried out within minutes while you wait for the processing of your information. It’s a DIY process that you can do if you have the relevant information to provide, and documents to upload. 

You can apply online through the following Fintech Companies:

• NAV
• Funding Circle
• Divvy
• Lendio

Where to Apply for the new PPP loan

The extension to the new PPP is done to avoid issues where intelligible applicants won’t receive their funding. Applications are currently being made using community lenders that can give priority to small businesses. You should check with the lending institution of your choice to find out if they have started accepting applications or when they intend to start.

If the lender you prefer is not among the participating institutions, you can check out other Fintech institutions that are in partnership with local lenders and also receiving applications. Each of these institutions has its own advantages and disadvantages so it is best for you to be sure that the lender will process your application quickly in favor of your business.