PPP2 is Live: How it Works

The Second Draw of the PPP initiative, often called PPP2, is now officially open for business. As of January 13, 2021, forgivable loans are once again available to eligible companies who have been affected by COVID-19. The new PPP is currently set to run through March 31, 2021.

Who is Eligible for PPP2?

Some of the biggest changes between the original PPP and PPP2 are related to eligibility. While businesses are allowed to take out a second PPP loan, the new requirements will likely disqualify some companies that received loans in the original program.

The SBA sets out 3 main requirements for Second Draw PPP loans:

• 25% drop in gross revenue. The PPP is intended for businesses who have been severely affected by COVID-19. To be eligible, you’ll have to be able to prove that you’ve experienced a reduction in gross revenue of at least 25% versus the same period in 2019. If your business didn’t exist in 2019, you can compare your Q4 2020 revenue to earlier periods in 2020.
  
• 300 employees or fewer.  This is reduced from the PPP1, which set the maximum number of employees at 500.
  
• Used a previous loan properly. If your business already received a PPP loan, you can also receive a PPP2 loan, so long as you used (or are currently using) the full amount for authorized expenses.
  

What are the Requirements for PPP2 Loan Forgiveness?

Like the original PPP, PPP2 loans can be fully forgiven if businesses meet the criteria for loan forgiveness. The main idea here has stayed the same: in order to qualify for forgiveness, your business must spend the entire amount within the specified time period, on a certain set of expenses, without significant reduction to employee headcount. However, the details of the requirements for PPP2 loan forgiveness are slightly different:

• Businesses can choose the length of the time period to spend their loan in, between 8 and 24 weeks.
  
• In addition to the expenses allowed under the original PPP (payroll, rent, utilities, mortgage payment interest), PPP2 funds may also be spent on “supplier costs on existing contracts and purchase orders, including the cost for perishable goods at any time, costs relating to worker protective equipment and adaptive costs, and technology operations expenditures.”
  
• At least 60% of the loan must be spent on payroll.

How Do You Apply for a PPP2 loan?

As with the original PPP, the SBA is not administering PPP2 loans directly. Instead, you’ll submit the PPP Second Draw Application Form to a participating lender. If your usual lender isn’t participating, the SBA website can help you find one that is. 

Most businesses can apply for a maximum loan amount of 2.5x their monthly average payroll costs in either 2019 or 2020, with a cap of $2M. An exception is some businesses in the food and hospitality industry, who can apply for up to 3.5x their monthly payroll.

When the time comes, you’ll apply for loan forgiveness through the same lender that originated your PPP2 loan.

This article is provided for informational purposes only, and is not legal, financial, accounting, or tax advice. You should consult appropriate professionals for advice on your specific situation.