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Updated: January 22nd, 2021
Disclaimer: This article is updated as of January 22, 2021. However, information around the PPP can change quickly, so check back here or on the SBA site for the latest details.
If your business is struggling after nine months of COVID-19-related shutdowns and challenges, help is on the way. Congress recently passed the “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act,” in part to reauthorize the Paycheck Protection Program (PPP) that ended in August 2020.
The new COVID-19 relief bill has two main purposes: 1) to offer funding to small businesses that didn’t receive a PPP loan the first round and 2) to give certain qualified businesses the chance to get a second PPP loan.
Once the SBA reopens the program, it will run through March 31, 2021, or until funds run out (whichever comes first). Small businesses may be able to apply for a loan as early as January 15, 2021.
To get prepared for a PPP loan, it’s critical to read up on the latest eligibility requirements and terms so you know where you stand and how to prepare. The following guide outlines everything you need to know about the updates to the PPP.
Issued as part of the CARES Act in March 2020, the PPP gave small businesses and independent contractors loans to cover payroll costs for a period of up to eight weeks.
The program — which ran from April to August 2020 — initially allotted $349 billion in funding to small businesses, then injected another $320 billion to help satisfy the high demand of applicants. Unlike other SBA loans, PPP loans are designed to be partially or fully forgivable, meaning you won’t have to pay them back as long as you follow certain rules.
Here are a few key facts about the first round of PPP loans:
Though the program helped countless small businesses stay afloat amid COVID-19 shutdowns and restrictions, the Paycheck Protection Program wasn’t a cure-all for the small business economy. Many small businesses were ignored by bank lenders, while others didn’t receive a loan before the PPP closed in August 2020.
Now, to offset these losses and help a greater number of small businesses recover, Congress is amending a handful of terms and requirements around PPP loans.
Under the new legislation, the SBA is getting over $284 billion in funding for first and second-time PPP loan borrowers. The bill also states that $20 billion will be set aside to provide Economic Injury Disaster Loan (EIDL) grants to businesses in low-income communities.
Another $15 billion is going toward Shuttered Venue Operator Grants, which give money to independent movie theaters, cultural institutions, and live venues that have been forced to close their doors. Another $12 billion is dedicated to supporting businesses in low-income and minority communities.
The new round of PPP loans will be available to three categories of businesses:
Every business that applies for a PPP loan needs to have been in operation since at least February 15, 2020 to be eligible.
First-time PPP borrowers from the following groups are eligible to apply:
Previous PPP loan recipients who meet the following criteria are eligible to apply:
Previous PPP loan recipients who returned all or part of their loan are also eligible to apply (more on this later).
As with PPP1 loans, PPP2 loans give qualified businesses a loan of up to 2.5 times their average monthly payroll costs, either determined by the calendar year in 2019, 2020, or by the 12 months prior to the date the application is submitted. Hospitality or food service businesses with a NAICS code beginning in 72 may receive up to 3.5 times their average monthly payroll costs.
However, one of the biggest changes is the maximum loan amount, which is down from $10 million in 2020 to $2 million for second-time loan recipients. Congress has also updated other aspects of the PPP, including the following:
Under the original Paycheck Protection Program, business owners could get their loans partially or fully forgiven if they spent their funds on payroll costs, utilities, rent, and mortgage interest payments.
With PPP2 loans, there will be expanded coverage for expenditures beyond payroll, utilities, rent, and mortgage interest, making it easier to obtain partial or full loan forgiveness. There’s also one notable change to payroll costs, which is the addition of employer-provided group insurance benefits, including group life, disability, vision, or dental insurance.
Here are the new areas you can allocate PPP loan funds to:
Under PPP2, you’re eligible for full loan forgiveness as long as you spend at least 60% of your loan amount on payroll costs. To be eligible for forgiveness, you have to spend the funds over a covered period of your choosing: between eight and 24 weeks after the loan’s origination.
Another change is that you’re no longer required to deduct your EIDL advance grant money from your PPP loan forgiveness amount, which was a rule during the first round of PPP loans.
The new legislation also streamlines the forgiveness application for loans of $150,000 or less. To apply for forgiveness if you receive a loan of $150,000 or less, you have to submit a one-page application to your lender that includes:
The SBA has to create a simplified application form within 24 days of the bill’s enactment, and won’t require any other materials from business owners unless they’re necessary to verify a business’s revenue loss.
Just like with the original PPP loans, you cannot count your PPP loan forgiveness amount as part of your business’s gross income.
However, the new bill clarifies that any businesses expenses that are paid with a forgiven PPP loan and are otherwise deductible will be tax deductible. Your assets will also not be reduced as a result of the loan forgiveness. This provision applies to PPP1 loans and all PPP loans going forward.
If you’re applying for a PPP loan for the first time, here’s what you need to know:
To qualify, your business must have been in operation since at least February 15, 2020. You also have to fit into one of the following groups:
Your business can receive up to 2.5 times your average monthly payroll costs (for the 12 months preceding the date the loan starts or for the calendar year of 2019 or 2020). The maximum loan amount you can receive is $10 million.
If you’re a seasonal business, you can count your average monthly payroll costs from any 12-week period of your choosing between February 15, 2019 and February 15, 2020. To be a seasonal business, you must 1) operate for no more than seven months a year and 2) earn no more than ⅓ of your total receipts in any six months in the prior calendar year.
If your business was operating by February 15, 2020, but hasn’t been operating for a full 12 months yet, you can figure out your average monthly payroll costs by examining payroll from the months you have been operating.
If you’re self-employed, you can apply for payroll costs based on your net profit for 2020.
The following costs count as payroll:
The following costs do not count as payroll:
To qualify for full loan forgiveness, you need to spend no less than 60% of your total loan amount on payroll costs. You can then spend up to 40% of your loan amount on rent, mortgage interest, utilities, and the expanded covered costs, which include: operations expenditures, supplier payments, property damage costs, and worker protection expenses.
Your covered period — which is when you must spend at least 60% of your funds on payroll — can be between eight and 24 weeks after your loan originates. To be forgiven, you must spend the remainder of your funds before September 30, 2021.
If you receive a loan of $150,000 or less, you can submit a one-page document to your lender as part of the simplified forgiveness application. However, if you receive more than $150,000, you have to submit the following:
Even if you’re eligible for the simplified forgiveness application, it’s still a good idea to hold onto all your relevant receipts, documents, and accounts from this time. You need to have proof you spent your funds correctly in case you get audited.
If you’ve already received a PPP loan, you can still apply for a second one — called a second draw — as long as you meet the following criteria:
You should also be one of the following: a small business, 501(c)(6) nonprofit organization, housing cooperative, veterans’ organization, tribal business, small agricultural cooperative, sole proprietor, independent contractor, or self-employed person.
There are a couple important caveats that second time borrowers should be aware of: 1) If you received a Shuttered Venue Operator Grant, you won’t be eligible for the second PPP draw and 2) If your business has multiple locations, you can’t employ more than 300 employees per location to be eligible.
If your business wasn’t operating for all of 2019, you may have to adjust the quarters you compare to determine where you had a 25% reduction in gross revenue.
Similar to your first PPP loan, for the second loan you can receive up to 2.5 times your average monthly payroll costs, which are calculated for the 12 months prior to the loan or for the calendar year of 2019. For second draw loans, the maximum amount you can receive is $2 million.
The only exception is if your business has a NAICS code beginning in 72. In that case, you could receive up to 3.5 times your average monthly payroll costs, but the maximum loan amount is still capped at $2 million.
Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019 through February 15, 2020.
You’re eligible for partial and full loan forgiveness with a second PPP loan provided you meet certain qualifications.
As with a first-time PPP2 borrower, you have to spend no less than 60% of your total loan amount on payroll costs. Up to 40% of your remaining funds can go toward rent, mortgage interest payments, utilities, and other covered costs, including operations expenditures, worker protection expenses, property damage costs, and supplier payments.
You must spend the funds on your payroll costs during the covered period, which is between eight and 24 weeks from the date of the loan origination. Unlike the first PPP loans, you don’t have to deduct the amount of your EIDL grant from the PPP loan forgiveness amount.
To be fully forgiven, you have to use the remainder of your PPP loan funds on eligible uses before September 30, 2021.
If your loan is $150,000 or less, you can use the simplified forgiveness application form. On the other hand, if your loan amount is greater than $150,000, you’ll have to apply for forgiveness the way you did last time.
Yes! If you returned all or part of your first PPP loan, you can apply for an amount that’s equal to the difference between the money you kept and the maximum funds available to you. If you didn’t accept the full amount you were approved for, you can request to borrow the full amount your business is eligible for during the second draw. The SBA will be releasing more guidelines around this soon.
If you had a positive experience with your first PPP lender, you may want to ask if they’re participating in the second draw. However, if you had a hard time getting funding or didn’t receive much help throughout the process, it may be time to consider a different lender.
Large banks were inundated with PPP loan applications during the first round, and many didn’t have the time or bandwidth to respond to everyone who applied. Using an alternative lender may be simpler and faster.
At Funding Circle, we’re here for small businesses like yours, especially during this confusing, chaotic time. Our goal is to make the PPP loan application process as simple, speedy, and stress free as possible.
To learn more about how we can help — or to get your application ready — go here.
No. Funding Circle is not accepting requests for recalculations of first draw loans made before August 8, 2020. However, if you apply for a second draw, we will ensure you receive the maximum loan amount you are eligible for.
The Paycheck Protection Program is back with new eligibility requirements and terms. If you didn’t receive a PPP loan last year, or if you did but still need additional funds to stay afloat, consider applying this round. The program is expected to reopen sometime in early January and run through March 31, 2021 or until funds are exhausted. The SBA should be issuing new guidelines and regulations soon, so make sure you stay up to date on the latest information.
Paige Smith is a Content Marketing Writer and Senior Contributing Writer at Funding Circle. She has a bachelor's degree in English Literature from Cal Poly San Luis Obispo, and specializes in writing about the intersection of business, finance, and tech. Paige has written for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.