PPP Loans Round 2 Second Draw Now Open: How to Apply

The U.S. Small Business Administration launched round two of Paycheck Protection Program (PPP) loans on Monday, which will distribute up to $284 billion to small businesses as an incentive to keep their workers on the payroll. 

The SBA prioritized businesses that had never received a PPP loan by giving them two days to apply for loans before opening up the process to repeat borrowers. Demand for these loans is expected to be high, as about 84% of borrowers surveyed by the National Federation of Independent Business last fall said they have used all of the PPP funds they were given and 44% said they would apply for a second PPP loan if possible.

Who Can Apply Now? 

Last year, the first round of $522 billion in PPP loans were gone in 13 days and many criticized the program for disproportionately favoring larger businesses and undeserving minority-owned firms. Many major franchisors, including Potbelly, Sweetgreen and Ruth’s Chris Steak House, even returned the loans following intense backlash in the media. 

This time, businesses that typically lack traditional relationships with banks, including minority-, women- and veteran-owned businesses, were given a three-day exclusive head start to apply for the loans. In addition, business owners who did not apply the first time or were denied the first time got access on Monday.

For businesses that did receive PPP loans last time, Wednesday marked the first chance to apply.

How Do I Qualify for a Second PPP Loan?

Starting today, businesses that received a PPP loan last year can apply again. If the following statements apply to the business, they are eligible to apply for a second PPP loan in 2021:

• The business has used up, or will use up, its first PPP loan
• The business was operational before February 15, 2020
• The business is still open and operational
• The business has no more than 300 employees
• If the business has multiple locations, it has no more than 300 employees per location
• The business owner can show a 25% or greater reduction in gross revenue

Second-draw PPP loans are available to qualifying small businesses, certain nonprofits, self-employed individuals, independent contractors, sole proprietors, housing cooperatives, small agricultural cooperatives and veterans’ organizations.

What Is Different About This Round of PPP Loans?

Just like the first round, borrowers must spend at least 60% of the loans on payroll, with the other 40% going to other eligible operating expenses. 

The first round of PPP loans in April of 2020 listed eligible operating expenses as rent and utilities expenses, but this second stimulus bill has expanded the list to include operational expenditures, property damage costs, supplier costs and worker protection expenditures. 

These new eligible expenses now apply to all PPP loans, including those obtained in the first round. This round will also now allow business owners to deduct expenses associated with the loans when tax day rolls around.

How Much Money Can I Receive for a Second PPP Loan?

The maximum loan amount possible for this round is $2 million, as opposed to the previous cap of $10 million. In general, if this is the second time a business requests a PPP loan, it’s eligible to borrow an amount equal to 2.5 times its average monthly payroll costs.

But this formula doesn’t apply to every business. For example, it will be calculated differently for seasonal businesses and new businesses. Also, businesses that are classified as “accommodation and food-services industries” by the SBA, such as restaurants or hotels, will be eligible for loans up to 3.5 times their average monthly payroll costs. This is meant to provide additional aid for industries that were hit particularly hard by the pandemic. 

Can I Request an Increase in My First PPP Loan?

Second-time borrowers who don’t want to go through the hassle of taking out a brand new loan can simply request an increase in a previous PPP loan amount. As long as they haven’t already applied for forgiveness, an increase will be open to those businesses that did not take the full loan amount or returned a portion of their first loan. 

In addition, second-time borrowers can choose to borrow from a different lender than the one they worked with the first time if the experience was less than ideal. 

How to Apply for PPP loans

Business owners should start preparing now by gathering documentation that details payroll costs, employee headcounts, operating costs and other expenses. The application window will close on March 31, 2021, and the application can be found here. 

Franchisees who already received PPP loans during the first round should discuss the opportunity to re-apply with their franchisor. As businesses continue to struggle with capacity restrictions and high unemployment, PPP loans can be a major lifeline for franchisees who are struggling to pay employees or are looking for ways to reduce overhead costs. 

Second-draw loan funds can be forgiven if they are used on qualified costs within 8 to 24 weeks of receiving the loan, although this exact time frame is determined on a case-by-case basis. 

For those second-round applicants ready to prepare for the loan process, take a look at the second-draw application over at SBA.gov.