Updated: Mar 17
Riding the coattails of the vaccine rollout, PPP 2.0 – the highly anticipated and vital lifeline for small businesses – is in full swing again after the approval of $284.5 billion in new funding.
Established under the CARES Act to give small- and medium-sized businesses critical assistance in keeping their workers onboard, updates to the program include a more targeted approach that makes sure the money goes where it’s needed most as well as simplifying loan forgiveness for some. It also clarifies what funds can be used for, modifying eligibility requirements and loan sizes.
Let’s dive in.
Can I Get a Loan?
2.0 is open to first-timers as well as those who secured a loan before. There are however different eligibility requirements for first draw and second draw loans.
For first draw loans, meaning the first time you’re getting a PPP loan, the requirements are largely the same as before:
Sole proprietors, independent contractors, and self-employed persons
Any small business concern that meets SBA’s size standards (either the industry size standard or the alternative size standard)
Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of 500 employees, or that meets the SBA industry size standard if more than 500
Any business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
Eligibility was expanded to include news organizations with less than 500 employees per location, housing cooperatives, 501(c)(6) organizations and destination marketing organizations with no more than 300 employees.
If you’ve already received a loan you may be eligible for a second draw loan with criteria meant to help target the loans even more:
Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
Has no more than 300 employees; and
Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020
On top of that, and to rectify issues with where funds were going in the first iteration of PPP, publicly traded companies are excluded from this round.
What is the Maximum Loan Size?
Funding is, of course, correlated with your business’s payroll with first draw loans maxing out at $10 million while second draw loans top out at 2.5x the average of your monthly payroll costs up to $2 million.
To further focus assistance where it’s most necessary, for those businesses in the hard-hit accommodation and food services sectors, the second draw loan can be calculated using 3.5x average payroll.
Expanded Nonpayroll Uses
If you were approved for an initial PPP loan, you had to spend at least 60% of the funds on payroll to ensure your loan was forgiven while the other 40% could go towards rent, mortgage, or utilities.
In PPP 2.0, the 60% payroll figure still stands but more flexibility has been afforded to business owners in the form of more nonpayroll expenses that have been approved for the other 40%. In addition to the aforementioned expenses, they include:
Worker protections related to COVID-19 i.e., personal protective equipment
Uninsured property damage due to looting or vandalism in 2020
Particular supplier costs
Certain operating expenses like software
As mentioned, your loan can be forgiven if, during the 8 to 24 weeks of coverage, you:
Maintain employee and compensation levels
Spend the loan on payroll costs and other eligible expenses
Use at least 60 percent of the proceeds on payroll costs
If for whatever reason you’re unable to meet the criteria for forgiveness, all PPP loans have an interest rate of 1%, require no collateral, and mature in 2 years if they were issued prior to June 5th, 2020, and 5 years if issued after.
Forgiveness is now even more simple if your loan is under $150,000 requiring only a 1-page form asking you to certify that you abided by the PPP requirements.
Greater Access for All Communities
As another way to improve the targeting of PPP 2.0, a concerted effort was made to help underserved and disadvantaged communities by setting aside funding.
$10 billion for first draw loans to businesses with a maximum of 10 employees or for loans of $250,000 or less to those in low- or moderate-income areas
$25 billion for second draw loans to businesses with a maximum of 10 employees or for loans of $250,000 or less to those in low- or moderate-income areas
Moreover, an initial application window meant to promote access for smaller lenders and community financial institutions preceded the wider rollout.
When Can I Apply?
You can submit an application with our partners at ACAP & The Loan Source for a first or second draw loan until March 31, 2021.
PPP 2.0 will no doubt be a welcome relief for many and the updates have certainly improved on the initial effort, making many things easier but it can still be a confusing process. Head over to our PPP FAQs for more information.
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