Understanding the SBA’s PPP Loan Program
The U.S. Small Business Administration (SBA) was quick to respond to the economic crisis that COVID-19 introduced. In an attempt to help small business owners and employees, the SBA introduced the Paycheck Protection Program (PPP).
The SBA is now accepting applications for a Second Draw PPP Loan in an attempt to provide additional assistance. Eligible businesses that did not apply during the first round are also invited to apply now.
What Is a Second Draw PPP Loan?
The PPP is an SBA loan designed to help small businesses keep their workforce employed during the pandemic. The Second Draw marks the reopening of the program, with the SBA now accepting applications from businesses who either did not have the opportunity to apply for the First Draw and for those that did apply and received a loan but now need further financial assistance.
Deadlines to Apply
Eligible businesses may apply for a Second Draw PPP Loan no later than March 31, 2021. Still, it is highly recommended to apply as soon as possible.
Qualifying Entities
The program is available to select entities affected by the pandemic. Businesses that may qualify include:
- 501(c)(19) veterans’ organizations, or tribal business concerns (sec. 31(b)(2)(C) of the Small Business Act) with no more than 500 employees, or those that meets the SBA industry size standard if more than 500
- 501(c)(3) non-profit organizations
- Corporations and Limited Liability Companies (LLCs)
- Sole proprietors, independent contractors, and self-employed persons
- Any other small business that meets either the SBA’s industry size standard or the alternative size standard
Is My Business Eligible for a Second Draw PPP Loan?
Beyond being a qualifying entity, the organization must meet additional prerequisites to apply. A business is eligible for a Second Draw PPP Loan if it:
- Previously received a First Draw PPP Loan and will or has used the funds solely for authorized uses
- Has no more than 300 employees OR has 500 or fewer employees who reside in the United States OR meets the SBA’s employee-based size standards for that industry
- Has suffered a 25% reduction in gross receipts in 2020 compared to the same quarter in 2019.
What PPP Loan Funds Can Cover
There are strict guidelines regarding what costs a PPP loan can be used for. Second Draw PPP Loans can be used to help fund:
- Business rental fees
- Certain supplier costs and operational expenses
- Employee benefits
- Mortgage interest rates
- Payroll costs
- Uninsured property damage costs caused by looting or vandalism during 2020
- Utilities
- Worker protection costs related to COVID-19
Maximum Loan Amount
The maximum loan amount of a Second Draw PPP Loan is 2.5 times the average monthly payroll costs in either 2019 or 2020, up to $2 million. For business owners in the Accommodation and Food Services industry (NAICS code 72), the maximum loan amount of a Second Draw PPP Loan is 3.5x the average monthly the average monthly payroll costs.
Forgiveness
A Second Draw PPP Loan will be forgiven if employee retention criteria are met, and the funds are used for eligible expenses. Borrowers must submit a loan forgiveness application before the maturity date of the loan, which is either two or five years from loan origination. If a borrower does not apply for loan forgiveness, payments are deferred for 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).
Loan Terms
The Second Draw PPP Loan terms are similar to those of the First Draw. Second Draw PPP Loans will carry an interest rate of 1%. No collateral or personal guarantees are required, and no fees may be charged by either the government or the lender.
If the loan was issued before June 5, 2020, it has a maturity of two years. If the loan was issued after June 5, 2020, it has a maturity of five years.
Assistance with Second Draw PPP Loans
For further assistance understanding and applying for a Second Draw PPP loan, contact Denver Business Lawyers. Reach out to us online or at (303) 500-1484 to discuss the legal issues facing your business during a free preliminary consultation.