Navigating the Second Round of Paycheck Protection Program

We are starting to see improvements in the number of COVID-19 cases in Arkansas as more and more Arkansans are getting vaccinated and we collectively continue to follow health guidelines. This is great news. We also have good news for small businesses throughout the country that have been impacted by the Coronavirus. The Consolidated Appropriations Act, 2021 (CAA) was signed into law on Dec. 27, 2020, and includes new funding for the Paycheck Protection Program (PPP).

Why PPP matters

The PPP was originally funded by the CARES Act and included $349 billion in funding. It’s a loan administered by the Small Business Administration (SBA) to help businesses keep their workforce employed during the COVID-19 crisis. The first round of PPP expired Aug. 8, 2020.

The latest round of funding ($284 billion) expands on the original PPP goals of providing loans to businesses for payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. The funding will expire on March 31, 2021, or when the funds are exhausted.

Health and government officials are working hard to maintain the safety, security, and health of the American people. Small businesses are encouraged to do their part to keep their employees, customers, and themselves healthy, and the Paycheck Protection Program helps to make that possible. According to the SBA, “Second Draw PPP Loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.”

Applying for the new PPP loan can seem daunting, but I hope to provide you with some information to help you through the process.

Who qualifies for the second round of PPP?

According to the SBA, a borrower is generally eligible for a Second Draw PPP Loan if the borrower 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. Businesses must have been in operation on or before Feb. 15, 2020 and must be able to show that they used all of the money from the first loan in qualifying ways.

Examples of small businesses that could receive the Second Draw PPP Loan include:

• Small businesses with 500 or fewer employees

• Businesses categorized under "Accommodation or Food Services," such as restaurants and hotels that have 500 or fewer employees per location

• Independently owned franchises

• Self-employed workers, independent contractors, gig workers, and sole proprietors who can show a profit on their 2019 tax returns

• Various tax exempt organizations with 300 or fewer employees

Applying for the second round of PPP

To begin the process you should reach out to a PPP loan lender, and your best resource for that would be a bank you’ve used already. Many national banks took applications only from borrowers they had worked with before during the first round of PPP. Most borrowers seeking a second loan will be able to apply through the lender that issued their first loan.

Thousands of community banks and specialist lenders are also participating, and the SBA runs a Lender Match program to connect applicants with lenders.

The SBA is also currently offering:

• First Draw PPP Loans for first time program participants

• Second Draw PPP Loans beginning January 13, 2021 for certain businesses who have previously received a PPP loan

How much can you apply for?

Businesses who are first-time borrowers are eligible for 2.5 times their average monthly payroll cost, up to $10 million. Sole proprietors can borrow 2.5 times the monthly profit they reported on their 2019 Schedule C tax form. Loans for second-time borrowers are capped at $2 million.

At least 60 percent of the loan must be used to pay workers and the rest must be spent on qualifying expenses. Borrowers must spend the loan within a timespan of eight and 24 weeks and must maintain the number of employees on its payroll.

What you’ll need in order to apply

While exact requirements could vary by lender, applicants will generally need copies of their payroll records. Many lenders will also request the business’s 2019 tax return and business documents like articles of incorporation or a state business registration certificate.

Those seeking second loans will need records showing that their sales dropped at least 25 percent in one-quarter of 2020. Lenders are not required to collect that proof before making a loan under $150,000, but they must get it before the loan is eligible to be forgiven and most lenders plan to ask for it during the application process.

When you’ll receive your funds

In the program’s first round, the SBA approved lenders’ applications instantaneously, allowing some loans to be disbursed just hours after the borrower applied. This time, the agency has added more fraud checks, and many lenders have also intensified their vetting. A typical loan will take at least a few days to go from application to payment.

Both first and second draw PPP loans are 100% guaranteed by the government and do not require collateral or personal guarantees. The interest rate for loans is 1% with a five year maturity rate.

There may be frequent updates and changes to the PPP process so please consult your banker for relevant updates.

For a more comprehensive explanation of how to apply for the second PPP loan, as well as the the loan forgiveness guidelines, visit: www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/ppp-loan-forgiveness#section-header-4

As always, I’m honored to be of service to my district during these trying times. Please stay safe, wear a mask, and utilize these resources to help get through the pandemic.

Sincerely,

Keith Ingram