Application deadline for second round of PPP loans May 31, 2021

Time is running out for small businesses to apply for PPP loans

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President Joe Biden signed a law extending the Paycheck Protection Program until May 31. The program was originally scheduled to sunset in March.

The PPP is one of many government programs to help provide relief for small businesses impacted by COVID-19. The other programs include:

Out of all the SBA COVID-19 relief programs, the PPP is the most extensive of the bunch.There are actually two PPP schemes — a First Draw and a Second Draw option. While most of the criteria are the same between these two types, there are a few distinct differences.

But before we get into the nitty-gritty details, let’s talk about what the PPP is and who is eligible.

Workest Infographic PPP SBA Loans

Does my small business qualify for a PPP loan?

The purpose of PPP loans is to help business owners keep workers on the payroll. At first, that sounds limiting, but you can actually use the PPP loan for a variety of needs, including:

  • Payroll costs, including benefits
  • Mortgage interest
  • Rent
  • Utilities
  • Worker protection costs related to COVID-19
  • Uninsured property damage costs from vandalism during 2020
  • Certain supplier costs and expenses for operations

PPP First Draw eligibility

Unlike the other COVID-19 relief programs, the PPP business eligibility is more general. For First Draw applicants, you can apply if:

  • You’re a sole proprietor, independent contractor, or self-employed
  • Your business is a 501(c)(3) non-profit, 501(c)(19) veteran organization or tribal business with fewer than 500 employees, or you meet the industry-standard size
  • Your business has the 72 North American Industry Classification System (NAICS) code and you have more than one location with fewer than 500 employees at each location

You can determine your industry-standard size using the SBA calculator. If you’re a non-profit, veteran, or tribal organization, you can also use an alternative size standard, meaning:

  • Your maximum tangible net worth is not more than $15 million
  • Your business’s federal income taxes (excluding carry-over losses) for the past two full fiscal years is not more than $5 million.

PPP loan terms

The PPP loan terms are fairly straightforward. They have an interest rate of 1%, and loans issued after June 5, 2020, have a maturity of 5 years.

You can defer payments if you apply for loan forgiveness with the SBA, who will convey your loan forgiveness amount to your chosen lender. If you don’t apply for forgiveness, your payments are deferred 10 months after the end of the covered period of your loan forgiveness. This period runs for about 8 to 24 weeks.

What makes this funding even more valuable is that the application does not require collateral for personal guarantees. In addition, both the government and lenders will refrain from charging additional fees.

First Draw PPP loan forgiveness

Businesses can get their First Draw PPP loan forgiven if during the first 8 to 24 weeks during reimbursement they:

  • Maintain employee and compensation levels
  • The funds are spent on payroll or other eligible expenses
  • At least 60% of the funds are spent on payroll

How to apply for your First Draw PPP loan

To apply, you first need to be matched with a Lender. There are two ways to do this. You can use SBA’s Lender Match or manually look for lenders on a map.

You’ll need two forms:

But you won’t want to waste time — the current deadline is May 31, 2021. 

First Draw vs. Second Draw

The biggest difference between the First Draw and Second Draw PPP option is the eligibility and some of the terms. The deadline of May 31, 2021 is the same for both applications. 

Businesses are eligible for a Second Draw loan if:

  • They previously received a First Draw PPP loan
  • They have already, or will soon, use the full amount of their first loan
  • They have fewer than 300 employees
  • They can show a 25% minimum reduction in gross receipts between comparable quarters in 2019 and 2020

In addition, there are a few additional terms for Second Draw PPP loans:

  • The maximum loan amount is 2.5x the average monthly 2019 or 2020 payroll costs
  • For the NAICS 72 businesses, the maximum loan amount is 3.5x the average monthly 2019 or 2020 payroll costs
  • Both options have a limit of $2 million

First and Second Draw PPP Loan Comparison

First Draw Second Draw
Eligible Businesses
- Sole proprietors, independent contractors, and self-employed persons
- 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 under 500 employees or they meet the industry standard size
- Businesses with the NAICS code that begins with 72 with more than one location and less than 500 employees per location
 
- 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
Loan Terms
- Interest rate of 1%
- Loans issued after June 5, 2020, have a maturity of 5 years
- Loan payments are deferred for borrowers who apply for loan forgiveness until SBA remits the borrower's loan forgiveness amount to the lender
- If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (between 8 and 24 weeks)
- No collateral or personal guarantees are required
- Neither the government nor lenders will charge small businesses any fees
 
Additional Terms:
 
- The maximum loan amount is 2.5x the average monthly 2019 or 2020 payroll costs
- For the NAICS 72 businesses, the maximum loan amount is 3.5x the average monthly 2019 or 2020 payroll costs
- Both options have a limit of $2 million
 
Forgiveness
- Maintain employee and compensation levels
- The funds are spent on payroll or other eligible expenses
- At least 60% of the funds are spent on payroll 
 
- Maintain employee and compensation levels
- The funds are spent on payroll or other eligible expenses
- At least 60% of the funds are spent on payroll 
 
Where to Apply
Application Deadline May 31, 2021 May 31, 2021

Can you use more than one SBA fund?

In some cases, you may be able to get support from more than one SBA program.

If you are a PPP recipient, you can:

  • Apply for a Second Draw and a SVOG
  • Also apply for EIDL, but you cannot use the funds for the same expenses
  • If you apply for an RRF after receiving PPP funds, that will affect your RRF total
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