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Updated: February 19th, 2021
Last year, the Paycheck Protection Program (PPP) provided forgivable loans to more than 5.2 million businesses. Loan averages hovered around $107,000, with 87% of the loans going for less than $150,000. These loans provided a lifeline to small businesses and employees across the country impacted by the COVID-19 pandemic.
However, the global pandemic has lasted longer than initially predicted, and businesses are still fighting to adapt to the New Normal. To keep US small businesses afloat, the government has approved the second round of funding to provide additional PPP loans.
These new-and-improved government-backed loans are available for first-time PPP borrowers and those taking a second-draw PPP loan. Not much has changed with PPP 2.0 loans, but the subtle nuances can make a big difference in your eligibility and application process.
If you already secured a PPP loan last year and are looking for a second draw, we’ll help you navigate the process below.
Second-draw PPP loans have slightly different eligibility requirements than first-draw loans. If you’re applying for a second PPP loan in 2021, you’ll need to satisfy the following criteria:
You have two different ways you can show a 25% or greater reduction in revenue:
Second-draw PPP loan amounts are calculated similarly to the original PPP loans. You’re eligible for a PPP loan equal to 2.5 times your average monthly payroll costs.
Maximum loan amounts have been crunched from $10 million to $2 million for second-time loan borrowers.
Businesses in special industries (like food, travel, and hospitality) are eligible for loan amounts equal to 3.5 times their average monthly payroll costs.
This time around, the PPP has included additional eligible expenses. The first rollout included payroll costs, utility expenses, and rent, but the 2021 PPP loans include:
To be eligible for complete loan forgiveness, you’ll need to make sure you use your PPP loan appropriately. There are 4 main factors to consider:
All eligible expenses must be incurred over the 8 to 24-week coverage period. This period begins on the day you receive your first PPP loan disbursement from your lender.
You must spend at least 60% of your loan on payroll costs. The remaining 40% can be spent on other PPP loan eligible expenses. If you spend less than 60% of your loan on payroll costs, your forgivable amount will be reduced proportionally.
You need to maintain the same number of employees on your payroll. If you let employees go due to economic factors, you’ll need to rehire or replace them before applying for forgiveness.
You need to maintain at least 75% of your employee’s total salary. This is calculated on an employee-by-employee basis, so you’ll need to make sure each employee is restored wages and hours before applying for forgiveness.
First-draw and second-draw PPP loans are available through Funding Circle. Whether you’re a new or returning customer, we have a quick-and-easy loan application process:
Once you’ve secured your PPP loan and use the funds appropriately, it’s time to apply for forgiveness. You’ll apply for forgiveness with your lender—not the SBA. Your lender will likely have sent you reminders, details, and instructions for how to start your application, but here’s a bit of universal guidance:
You have until March 31, 2021, to apply for a second-draw PPP loan, so don’t wait to start your application. Funding Circle’s PPP funds are limited, so we’re disbursing PPP loans on a first-come, first-serve basis. Start your application now.
Michael Jones is a Senior Editor for Funding Circle, specializing in small business loans. He holds a degree in International Business and Economics from Boston University's Questrom School of Business. Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing.