The U.S. Small Business Administration opened Second Draw PPP Loans (Paycheck Protection Program), making these forgivable loans available to first and second-time borrowers as part of the recently passed Covid-19 stimulus bill.
The recently passed Covid-19 stimulus bill allocated more funding for the PPP program, which just opened once more for second draws through March 31st. Full forgiveness is available to businesses if they meet the following terms during the 8- to 24-week covered period following loan disbursement:
- Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan;
- The loan proceeds are spent on payroll costs and other eligible expenses; and
- At least 60 percent of the proceeds are spent on payroll costs.
Additionally, a borrower is eligible for a Second Draw PPP Loan if the borrower:
- Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
- Has no more than 300 employees; and
- Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
For most small business borrowers, the relief could be substantial. Maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs, up to $2 million.
Applying successfully for PPP loans requires smart strategy, outlined in our earlier article. And fortunately small businesses will be first in line for funds this time, as the SBA attempts to fix the issues from 2020 when larger businesses snapped up a majority of the PPP funding due to their longer-established business relationships with banks and other lenders. This time around $25 billion is being set aside for Second Draw PPP Loans to eligible borrowers with a maximum of 10 employees, or for loans of $250,000 or less, to eligible borrowers in low- or moderate-income neighborhoods.