How to Apply for the Second Round of PPP Loan
Congress has signed the Consolidated Appropriations Act of 2021, designed to provide financial relief to businesses affected by Covid-19. This new bill includes small business aid in the form of a second round of PPP loans.
The first round of the Paycheck Protection program was established under the CARES Act but had a number of flaws which rendered many needy small businesses ineligible for aid. The updated PPP addresses those flaws and offers a second round of funding for businesses.
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PPP At a Glance
The SBA distributes small business loans through certain lenders. The second round of PPP includes:
- $284 billion of PPP loans
- An extension of the program until 31st of March 2021
- Businesses with fewer than 300 employees can apply for a second PPP loan.
- New types of businesses are eligible for PPP loans
- Loans under $150,000 have a simplified loan forgiveness application form
- An expanded list of forgivable expenses
- Group health insurance is a covered payroll cost
- Borrowers may choose their covered period
- A portion of PPP funds have been set aside for MDIs and CDFIS to be distributed to low-income areas
- PPP interest rates have been clarified; they are non-compounding and non-adjustable
- PPP loans are not taxable income
- Expenses paid for by forgiven PPP loans are tax-deductible
There are different eligibility criteria depending on if a business is applying for their first PPP loan or their second.
Eligibility Requirements for a First PPP Loan
- The business must employ fewer than 500 employees (including seasonal, part-time, and full-time employees.
- The business was formed before the 15th of February 2020 and has been operating since then
Eligibility Requirements for s Second PPP Loan
- The business employs fewer than 300 employees
- If the business has multiple locations, each location must have fewer than 300 employees
- The business was formed before the 15th of February 2020 and has been operating since then
- Business revenue for one quarter in 2020 was reduced by at least 25% in comparison with the same quarter in 2019
- The business has exhausted its first PPP loan
Types of Businesses Eligible for PPP Loans
- Self-employed individuals
- Independent contractors
- Sole proprietors
- Certain non-profits
- Housing cooperatives that employ 300 people or less
- Faith-based organizations with less than 150 employees
- Seasonal employers
Types of Businesses INELIGIBLE for PPP loans
- Businesses offering financial services or lenders
- Lobbying organizations
- Businesses that deal with products that considered illegal by the federal government, such as cannabis businesses
- Organizations involved in public policy or other political activities
- Household employers
- Businesses that are 20% or more owned by someone who in the last five years was convicted of a felony
- Businesses that are 20% or more owned by someone who is subject to an indictment, on parole, on probation, or incarcerated.
- Registrants under the Foreign Agents Registration Act
- Businesses that have defaulted on federal or SBA loans
- Entities affiliated with Hong Kong or China, or have a board member who is a resident of China
- Entities who will receive or have already received a Shuttered Venue Operator Grant
PPP Round 2 Loan Allocations
The Consolidated Appropriations Act of 2021 sets aside allocations for specific business types hard hit by Covid-19. The following amounts have been allocated:
- $15 billion for PPP loans to be issued by MDIs and CDFIs which focus on low-wealth communities
- $15 billion for PPP loans to be issued by certain small depository institutions
- $25 million for PPP loans to be issued by the Minority Business Development Centers Program
- $57 million for microloans
- $15 billion for live venue grants
- $20 billion for the EIDL Advance program
- $15 billion for first-time borrowers of less than $250,000 who either have less than ten employees or are in low-income communities
- $25 billion for second-time borrowers of less than $250,000 who either have less than ten employees or are in low-income communities
The Terms of PPP Loans
PPP loans have a 1% fixed interest rate which is non-adjustable and non-compounding.
The PPP states that lenders cannot:
- Charge guaranteed fees
- Charge yearly fees
- Request a personal guarantee or collateral
- Charge a prepayment fee
PPP loan recipients may receive additional loans from other programs and lenders or apply for credit from other financial institutions.
Loan Maturity and Deferral Period
PPP loans have a five-year maturity.
The deferral period is the length of time it takes to determine the loan forgiveness amount. Businesses need not make any payments until their loan forgiveness amount has been determined.
If a loan recipient does not apply for loan forgiveness, or their loan is not forgiven, then they must start loan repayments within ten months of the final day of the covered period.
PPP Loan Limitations and Maximums
To ensure as many businesses as possible receive a PPP loan, there are limits to what each borrower can receive.
Limitations for First-Time PPP Loans
The maximum loan amount any business can borrow for their first PPP loan is capped at $10 million. However, a business’s maximum PPP loan is calculated as 2.5 times the average monthly healthcare and payroll expenses.
Restaurants and hospitality businesses may have exceptions to these limits.
Limitations for Second-Time PPP Loans
Any businesses that apply for a second PPP loan will have stricter limitations. The maximum loan amount any business can borrow for their second PPP loan is capped at $2 million. However, a business’s maximum PPP loan is calculated as 2.5 times the average monthly healthcare and payroll expenses. If a business is NAICS Code 72, then their maximum loan amount may be 3.5 times the average monthly healthcare and payroll expenses.
PPP Loan Forgiveness
The PPP loan forgiveness process has been streamlined with additional expenses which are forgivable.
The Covered Period
A condition of loan forgiveness is that the money must be used within the covered period. However, PPP loan recipients may now choose their covered period. It must be between eight and twenty-four weeks.
To be forgiven, a PPP loan must be spent on covered expenses. While there are strict requirements for how funds must be allocated, the list of covered expenses has been expanded in the new bill.
Below is a table which explains what the funds may be used for
At least 60% of the PPP loan must be used for:
- Disability benefits
- Life insurance
- Dental and vision plans
- Group health insurance
- Employee payroll costs including wages, salaries, commissions, and tips. This is capped at a maximum per employee amount of $46,154 for a 24 week covered period or $15,385 for an eight week covered period.
- Owner compensation costs, depending on the covered period, this is capped at eight weeks of net profit earned in 2019 (capped at £15,385) or 2.5 months of net profit earned in 2019 (capped at $20,833).
**If you are a PPP round 1 loan recipient and your loan has been forgiven, then disability benefits and life insurance are not a covered cost.
40% or less of the loan may be spent on
- Interest on mortgage payments
- Federal income and FICA taxes
- State unemployment insurance
- Pension and retirement plans
- Paid time off and leave for employees which are not already covered by FFCRA tax credits
If your round one loan has not yet been forgiven or you are applying for a first or second loan in round 2, you may also use it towards these expenses:
- Property damage, looting, or vandalism from 2020 unrest
- Covid-19 safety government guideline compliant PPE
- Business software or cloud services necessary to business operations
- Costs for suppliers who are essential to business operations
- Equipment or additional measures that government Covid-19 guidelines require
All businesses must keep records and documentation relating to the expenses for four years.
These expenses are not covered:
- Commuter benefits
PPP Loan Forgiveness Applications
There are a number of PPP loan forgiveness applications, and the one you choose will depend on your business.
- PPP Loan Forgiveness Application Form – Anyone who has applied for a PPP loan may use this form.
- PPP Loan Forgiveness Application Form 3508EZ /EZ Loan Forgiveness Application – This is a more streamlined form that may be used by the self-employed, sole proprietors, independent contractors, and employers who have reduced employee wages by less than 25% during the covered period.
- PPP Loan Forgiveness Application Form 3508S / Simplified Loan Forgiveness Application – This is a simplified form which may be used by anyone who received a PPP loan of less than $50,000.
- Simple Loan Forgiveness Application – This is a one-page certification form which may be used by recipients of a PPP loan of less than $150,000.
Businesses must keep relevant records for four years in case of an audit.
PPP Loans and Taxes
The Consolidated Appropriations Act of 2021 has clarified PPP loans and how they are taxed. The new regulations backdate to the 27th of March 2020, and so apply to first-round PPP loans too.
Under the new regulations:
- PPP loans will not be counted as taxable income
- All expenses paid with forgiven PPP loans are tax-deductible
Frequently Asked Questions About the Paycheck Protection Program
How Do I Apply For a PPP Round 2 Loan?
Visit your closest lender that is processing PPP loans. The loan terms won’t change, but the application process and forms may vary from lender to lender.
Where Can I Find a List of PPP Lenders?
Contact your nearest lenders to ask if they are handling PPP loans. Visit the SBA’s website for a full list of PPP lenders.
I Was Ineligible For a PPP Loan In the First Round, Should I Apply For a Second Round Loan?
As long as you meet the Second Round PPP loan eligibility requirements and can meet the loan terms, you should apply for a PPP loan. The new round of PPP loans features expanded eligibility requirements and money allocated to certain types of businesses. For example, businesses owned by POC, smaller businesses, and those operating in low-wealth communities are prioritized in this round of funding.
As PPP loans are only one portion of the financial assistance available under the Consolidated Appropriations Act of 2021, if you are ineligible for a PPP loan, you should ask your lender if there are any other programs you are eligible for.
I Returned a Portion or All of my PPP Loan, Can I Apply for Another One?
Yes, guidelines will be released as to how lenders will assist those who have returned their first PPP loan.
Are There Other Funding Options Under the New Bill?
Yes, there are a number of grant programs under the new bill. If you do not qualify for the Paycheck Protection Program, you might qualify for another funding option.
The following programs have received additional funding:
- SBA 7(a) loans
- CDFIs and MDIs
- Grants for theatres and live venues.