Second ppp loan update

Second ppp loan update DEFAULT

Information in this section is drawn from the SBA Interim Final Rule (IFR) Business Loan Program Temporary Changes; Paycheck Protection Program as Amended by the Economic Aid Act; references to “the IFR” generally refer to that document unless otherwise noted (e.g., guidance from the March 22, 2021, IFR implementing the American Rescue Plan Act’s changes). We have summarized key points, but in many cases you will find additional detail in the IFR.


To be eligible for a PPP loan in this round, a prospective borrower (together with any affiliates): 

1) Must have been in operation on Feb. 15, 2020; 

2) Must have had employees for which they paid salaries or payroll taxes, have paid independent contractors, or be an eligible self-employed individual, independent contractor, or sole proprietorship with no employees; and

3) Must be one of the following types of organizations:

  • A “small business concern” under the applicable SBA revenue-based size standard for the applicant’s industry or the SBA alternative size standard (in brief: together with its affiliates, the entity must have a maximum tangible net worth of not more than $15 million; and its average net income after federal income taxes (excluding any carry-over losses) for the two full fiscal years before the application date must be not more than $5 million)  
  • An independent contractor, eligible self-employed individual, or sole proprietor
  • One of the following entities with no more than 500 employees (or a relevant SBA employee-based size standard; see Page 28 of the IFR for details)
    • A business concern
    • A 501(c)(19) tax-exempt veterans organization
    • A tribal business concern as defined in the Small Business Act
  • A NAICS code 72 (Accommodation and Food services) business with no more than 500 employees per physical location
  • A 501(c)(3) tax-exempt nonprofit organization with no more than 500 employees per physical location
  • As of March 11, 2021, a tax-exempt nonprofit organization described in any Section 501(c) paragraph other than (3), (4), (6), or (19) with no more than 300 employees per physical location (and subject to additional criteria, primarily related to lobbying; see Page 11 of the March 22 IFR for details) 
    • This generally expands eligibility for all 501(c) organizations except for those described in Section 501(c)(4), which generally includes social welfare organizations and local associations of employees
  • Electric and telephone cooperatives that are exempt from federal income taxation under Section 501(c)(12) were previously PPP-eligible if they had no more than 500 employees or met the employee-based size standard for their industry (if higher) or SBA’s alternative size standard. Now, for loans made on or after March 11, 2021, they can have no more than 300 employees per physical location, and can no longer use those other size standards. 
    Housing cooperatives, certain 501(c)(6) organizations (excluding professional sports leagues and organizations with the purpose of promoting or participating in a political campaign or other activity), and eligible destination marketing organizations (the latter two groups subject to specified limitations on lobbying activity) with no more than 300 employees per physical location
  • Certain news organizations: “A business concern, or any station which broadcasts pursuant to a license granted by the Federal Communications Commission under Title III of the Communications Act of 1934 (47 U.S.C. 301 et seq.), with more than one physical location that employs not more than 500 employees (or the size standard established by the Administrator for the NAICS code applicable to the business concern) per physical location, is eligible for a PPP loan if it: (1) is majority owned or controlled by a business concern that is assigned a NAICS code beginning with 511110 or 5151 or, with respect to a public broadcasting entity (as defined in section 397(11) of the Communications Act of 1934 (47 U.S.C. 397(11))), has a trade or business that falls under such a code.” This group must also make “a good-faith certification that proceeds of the loan will be used to support expenses at the component of the organization that produces or distributes locally focused or emergency information.” 
    • The American Rescue Plan Act added eligibility for “internet publishing organizations,” described as an entity that 1) is assigned a NAICS code of 519130; 2) “is engaged in the collection and distribution of local or regional and national news and information”; and 3) has not more than 500 employees per physical location (or a defined alternate size standard). Such an organization also must make good-faith certifications that it is an internet-only news or periodical publisher and that the loan proceeds “will be used to support expenses at the component of the business concern or organization that supports local or regional news.”

In most cases, a borrower will be considered together with its affiliates for purposes of determining eligibility. Affiliates are determined based on factors including (but not limited to) stock ownership, overlapping management, and identity of interest. Additional affiliate considerations for these PPP loans include:

  • SBA affiliation rules are waived for NAICS code 72 (Accommodation and Food services) businesses with no more than 500 employees (300 for second-draw loans); franchises that are approved on SBA’s Franchise Directory; small businesses that receive financing through the Small Business Investment Company (SBIC) program; and select news and nonprofit organizations and internet-only publishers. See Page 15 of the March 22 IFR for details.  
  • The number of employees in determining eligibility includes employees of any foreign affiliates; however, “under no circumstances may PPP funds be used to support non-U.S. workers or operations,” the IFR notes.
  • Otherwise eligible faith-based organizations are exempt from SBA’s affiliation rules where they would “substantially burden those organizations’ religious exercise.”
  • Portfolio companies of private equity funds are subject to affiliation rules; however, the IFR also reminds them that “all borrowers should carefully review the required certification on [the borrower application form] stating that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.’ ”
  • Participation in an employee stock ownership program (ESOP) does not trigger application of affiliation rules.

In calculating employee counts, also consider:

  • Independent contractors do not count as employees for the purpose of PPP loan calculations
  • Student workers generally count as employees in PPP calculations; however, applicant institutions of higher education cannot include work-study students or payroll costs related to them in their calculations for eligibility and loan amounts.

Partnerships are eligible for PPP loans, but individual partners may not submit separate PPP loan applications for themselves as a self-employed individual. “Instead, the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred on a PPP loan application filed by or on behalf of the partnership,” the IFR says. A partnership and its partners, and LLCs filing taxes as a partnership, are limited to one PPP loan. 

Seasonal employers were newly defined by the Economic Aid Actas an eligible recipient that:

1.“Does not operate for more than seven months in any calendar year;” OR

2.“During the preceding calendar year, had gross receipts for any six months of that year that were not more than 33.33 percent of the gross receipts of the employer for the other six months of that year.”

The IFR says that seasonal businesses will be considered as meeting the “in operation as of Feb. 15, 2020” requirement if they were in operation for any 12-week period between Feb. 15 of 2019 and 2020.

The following entities are eligible provided that they meet the other eligibility requirements:

  • Hospitals owned by state or local government (both businesses and tax-exempt nonprofits), provided they receive less than 50% of their funding from state or local government sources (exclusive of Medicaid)
  • Businesses that receive legal gaming revenue

The following are ineligible even if they meet the other requirements:

  • Any prospective borrower that engaged in any activity that is illegal under federal, state, or local law
  • Household employers (i.e., individuals employing nannies or housekeepers)
  • Applicants with an owner of 20% or more of equity who 1) is presently incarcerated, 2) is presently subject to criminal charges for any felony, or 3) has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years.
    • UPDATE: Previously, the above restricting circumstance #3 also applied to those in such circumstance related to any felony within the past year. SBA announced in early March 2021 that “the one-year lookback restriction related to non-financial fraud felonies should be removed and only the five-year lookback restriction for those felonies involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance will limit an applicant’s eligibility for the PPP.”
  • Applicants that themselves, or any business owned or controlled by them or any of their owners, “have ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government”
    • UPDATE: SBA announced in early March 2021 that this restriction will not apply in cases where the loan was a federal student loan. This change applies to both new PPP applicants and those that have already received a PPP loan, and to both first- and second-draw loans.
  • Businesses that were not in operation on Feb. 15, 2020
  • Businesses that are permanently closed
  • Businesses that have received or will receive a grant under the new Shuttered Venue Operator Grant (SVOG) program included in the Economic Aid Act
    • UPDATE: The American Rescue Plan Act revised the rules to allow some interaction between these two programs. If a business receives a first- or second-draw PPP loan after Dec. 27, 2020, but before it is approved for a SVOG, the SVOG amount will be reduced by that PPP loan amount (or, if the business receives both a first- and second-draw loan after that date, the SVOG will be reduced by the combined amount of both loans). But if the PPP applicant is approved for a SVOG before receiving an PPP loan number, the applicant will then be ineligible for the PPP loan, and “acceptance of any PPP loan proceeds will be considered an unauthorized use.”
  • Businesses for which a controlling interest is held by the president, vice president, the head of an executive department, a member of Congress, or a spouse of such person (Businesses in this category that received loans made before Dec. 27, 2020, must disclose that information to SBA, in some cases no later than Jan. 26, 2021; see Page 25 of the IFR for details)
  • Issuers with securities listed on registered national securities exchanges 
  • The applicant or its owner is the debtor in a bankruptcy proceeding
  • Hedge funds and private equity firms

See Page 26 of the IFR for details on whether businesses that are generally ineligible for 7(a) loans under 13 CFR 120.110 are eligible for PPP loans. 


Businesses can apply for the lesser of:

  • Maximum loan size of $10 million or
  • A calculated amount based on 2.5 times the average total monthly payroll costs during either calendar year 2019; the calendar year 2020; or the one-year period before the date the loan is made. In general, this calculation is as follows:
    • Aggregate eligible payroll costs from the chosen period for employees whose principal place of residence is in the U.S.
    • “Subtract any compensation paid to an employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred.”
    • Divide this amount by 12 to get average monthly payroll costs
    • Multiply by 2.5
    • “Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between Jan. 31, 2020, and April 3, 2020, that you seek to refinance”; do not include the amount of any EIDL COVID-19 loan advance.
  • Additional special calculation methods and documentation requirements are outlined for individuals with self-employment income (with and without employees); seasonal employers; farmers and ranchers (with and without employees); and partnerships
  • UPDATE: In early March 2021, SBA released additional guidance for filers of Form 1040, Schedule C – sole proprietors, independent contractors, and self-employed individuals. Read our full article for details.

Reference period: The CARES Act  stated that borrowers should calculate their maximum loan amount using “payroll costs incurred during the one-year period before the date on which the loan is made,” so most 2020 borrowers used 2019. The IFR allows new borrowers who obtain first-draw loans in 2021 to use either 2019 or 2020 to calculate their maximum loan amount, at their election, so that they can “obtain funding on terms commensurate with existing PPP borrowers” and “do not see their permissible loan amounts reduced due to financial distress experienced in 2020.” (Farmers and ranchers are included in this flexibility, which does not otherwise impact loan terms, processes, and procedures.)

Businesses that are part of a single corporate group – defined for this purpose as businesses that “are majority owned, directly or indirectly, by a common parent” – in no event can receive more than $20 million in the aggregate. Applicants that have applied for or received more than that amount must notify their lender and withdraw or request cancellation of any noncompliant pending PPP loan application or approved PPP loan. “Failure by the applicant to do so will be regarded as a use of PPP funds for unauthorized purposes, and the loan will not be eligible for forgiveness,” the IFR states.

  • Note that this limitation applies even if the business is eligible for a CARES Act waiver of SBA’s affiliation rules or otherwise not considered an affiliate under those rules.


Applicants will be required to provide payroll records, evidence of retirement and health insurance contributions, and other documentation from each quarter in the chosen period, as well as documentation from the pay period that included Feb. 15, 2020, to establish that they were in operation at that time.

In case of SBA review or audit, borrowers of all sizes should pay close attention to the IFR’s guidance for retaining records related to their spending and other compliance with PPP requirements.

Prospective borrowers will be required to make the following good-faith certifications on their applications indicating that they have met or will meet various program requirements. 

  • “The applicant was in operation on Feb. 15, 2020, has not permanently closed, and was either an eligible self-employed individual, independent contractor, or sole proprietorship with no employees, or had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC.”
  • “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” (However, note that the safe harbor introduced in May 2020 will also still apply: “Any PPP borrower, together with its affiliates, that received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”)
  • “The funds will be used to retain workers and maintain payroll; or make payments for mortgage interest, rent, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures as specified under the Paycheck Protection Program Rules; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable such as for charges of fraud. (As explained above, not more than 40 percent of loan proceeds may be used for nonpayroll costs.)”
  • “I understand that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, covered utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures, and not more than 40% of the forgiven amount may be for non-payroll costs. If required, the Applicant will provide to the Lender and/or SBA documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of eligible expenses for the covered period following this loan.”
  • The Applicant has not and will not receive another loan under the Paycheck Protection Program, or a Shuttered Venue Operator grant from SBA.
  • “The president, the vice president, the head of an executive department, or a member of Congress, or the spouse of such person as determined under applicable common law, does not directly or indirectly hold a controlling interest in the Applicant, with such terms having the meanings provided in Section 322 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.”  
  • “The Applicant is not an issuer, the securities of which are listed on an exchange registered as a national securities exchange under Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f).”
  • “I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects.” (The applicant also certifies in this item to understanding of penalties for false statements.) 
  • “I acknowledge that the lender will confirm the eligible loan amount using required documents submitted. I understand, acknowledge, and agree that the lender can share the tax information with SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.”


Payroll costs are defined as including:

  • Compensation to employees (whose principal place of residence is the U.S.) in the form of salary, wages, commissions, or similar compensation. Independent contractors do not count as employees for purposes of PPP loan calculations.
  • Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, “a reasonable, good-faith employer estimate of such tips”)
  • Payment for vacation, parental, family, medical, or sick leave
  • Allowance for separation or dismissal
  • Payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance, including insurance premiums, and retirement
  • Payment of state and local taxes assessed on compensation of employees
  • For an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation

Expressly excluded under the act are:

  • Compensation to employees whose principal place of residence is outside the U.S.
  • “The compensation of an individual employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred”
  • Federal employment taxes imposed or withheld during the selected period, including both the employee’s and the employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees
  • Qualified sick and family leave wages for which a credit is allowed under Sections 7001 and 7003 of the March 2020 Families First Coronavirus Response Act (FFCRA)


The IFR and subsequently released SBA guidance establish that the following borrowers can work with their “Lender of Record” – the lender reflected in SBA’s system as the current owner of the first-draw loan – to request loan increases. These increases can be made even if their loan has already been disbursed, but not if SBA has remitted a forgiveness payment. (Lenders are permitted to make additional disbursements for the increased amount.) Requests must be submitted on or before March 31, 2021, and will be subject to availability of funds. For more details and instructions, see Pages 74-76 of the IFR and SBA’s Jan. 13 Procedural Notice. (Lenders, see the Procedural Notice for guidance on submitting, reporting, and disbursing these requests and amounts.)

  • Partnerships that received PPP loans that did not include any compensation for their partners can request an increase to include “appropriate partner compensation.”
  • Seasonal employers that received loans before Dec. 27, 2020, and are now eligible for a higher maximum loan amount under the Economic Aid Act’s new calculation can request an increase to that higher amount.
  • Farmers and ranchers whose maximum loan amount calculation changed under the new legislation can request an increase if the new formula makes them eligible for a higher amount. 

Note that these increased amounts cannot exceed the maximum loan amount the borrower is entitled to, and cannot exceed $10 million for individual borrowers or $20 million for a corporate group. 

Also, as noted earlier, borrowers that repaid or did not accept all or part of their first-draw loan may be eligible to reapply for new first-draw loans or request an increase. In such cases, the lender must have reported the repayment or rejection to SBA before Dec. 27, 2020, and SBA must have not yet remitted a forgiveness payment.

  • If a borrower fully repaid their loan, the borrower may reapply for a new first-draw loan in an amount they are eligible for under the current PPP rules. The reapplication process depends on whether the lender reported the first-draw loan as “canceled” or “paid in full”; see Pages 4-5 of the Procedural Notice for details.
  • Borrowers that returned or repaid part of their first-draw loan can request an amount equal to the difference between the amount retained and the amount previously approved.
  • Borrowers that did not accept the full loan amount they were approved for can request an increase in their loan amount up to the amount previously approved.


PPP loans will generally be guaranteed under the same terms, conditions, and processes as other 7(a) loans, though there are changes including (but not limited to):

  • Guarantee percentage: 100%
  • No collateral or personal guarantees will be required
  • Interest rate: 100 basis points or 1%, calculated on a non-adjustable, non-compounding basis
  • Maturity: Five years
  • Lenders will not be required to apply the “credit elsewhere test”
  • Repayment
  • Borrowers that submit a forgiveness application within 10 months of the end of their forgiveness covered period (see below) do not have to make any payments of principal or interest before the date on which SBA remits the forgiveness amount to their lender (or notifies the lender that no forgiveness has been allowed). Lenders must inform borrowers of those events and the date their first payment is due.
    • The covered period is now defined as “the period beginning on the date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is eight weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement.”
  • If a borrower has not submitted a forgiveness application within that time frame (covered period plus 10 months), they must begin making payments on or after the last date of that time frame.
  • Note that interest continues to accrue during while payment is deferred.

Additionally, “All loans will be processed by all lenders under delegated authority and lenders will be permitted to rely on certifications of the borrower in order to determine eligibility of the borrower and the use of loan proceeds,” the IFR states.

Borrowers may not take multiple loan draws to delay the start of their covered period. The IFR states, “The lender must make a one-time, full disbursement of the PPP loan within 10 calendar days of loan approval; for the purposes of this rule, a loan is considered approved when the loan is assigned a loan number by SBA.”


Update: Click here to read our full overview of new and updated PPP forgiveness rules.

Like in the first round, new first-draw PPP loans are again forgivable up to the full principal amount of the loan and any accrued interest. “An eligible borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes and employee and compensation levels are maintained or, if not, an applicable safe harbor or exemption applies,” the IFR states.

The covered period is now defined as “the period beginning on the date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is eight weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement.”

With this new guidance, permissible expenses have been expanded – from the defined payroll costs and qualified rent, utilities, mortgage interest, and other interest payments – to also include:

  • Certain employer-provided group insurance payments: “Costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums”
  • Refinancing of SBA EIDL loans made between Jan. 31 and April 3 of 2020
  • Covered operations expenditures: “Payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses”
  • Covered property damage costs: Costs related to “property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation”
  • Covered supplier costs: Payments made to suppliers of goods pursuant to contracts, orders, or purchase orders in effect before the covered period (or, for perishable goods, in effect before or during the covered period), for the supply of goods that “are essential to the operations of the borrower at the time at which the expenditure is made”
  • Covered worker protection expenditures: Expenditures made to help the business comply with federal, state, or local requirements or guidelines related to worker and customer safety amid COVID-19, such as the purchase of PPE or facility modifications such as ventilation and filtration systems, physical barriers, and screening capabilities; see Page 50 of the IFR for additional details and examples
  • Note that borrowers that received PPP loans before, on, or after the date the Economic Aid Act was enacted – Dec. 27, 2020 – are allowed to use the expanded permissible expenses, unless their loans were already forgiven.

The IFR states: 

“At least 60% of the PPP loan proceeds shall be used for payroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL refinanced will be included. For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness. While the Act provides that PPP loan proceeds may be used for the purposes listed above and for other allowable uses described in section 7(a) of the Small Business Act (15 U.S.C. 636(a)), the Administrator believes that finite appropriations and the structure of the Act warrant a requirement that borrowers use a substantial portion of the loan proceeds for payroll costs, consistent with Congress’ overarching goal of keeping workers paid and employed. This percentage is consistent with the limitation on the forgiveness amount set forth in the Flexibility Act. This limitation on use of the loan funds will help to ensure that the finite appropriations available for these loans are directed toward payroll protection, as each loan that is issued depletes the appropriation, regardless of whether portions of the loan are later forgiven.”

Additional considerations regarding forgivable costs and forgiveness amounts include:

  • Individuals with self-employment income are subject to additional provided guidance on how loan proceeds can be used; see Page 52 of the IFR for information.
  • Loan proceeds cannot be used for lobbying activities or expenditures.
  • Payroll costs that are qualified wages taken into account in determining the CARES Act’sEmployee Retention Credit are not eligible for forgiveness.
  • Borrowers that also received SBA Economic Injury Disaster Loan Advances no longer need to subtract such advances from their PPP forgiveness, and SBA will no longer deduct those amounts from the forgiveness payment remitted to the PPP lender. “Any EIDL Advance Amounts previously deducted from a borrower’s forgiveness amount will be remitted to the lender, together with interest to the remittance date,” the IFR states.

Borrowers that are found to have used PPP funds for unauthorized purposes not only will have to repay those amounts, but may also be subject to additional liability such as charges for fraud. Shareholders, members, and partners can face SBA recourse for any unauthorized use they commit.

SBA issued a simplified forgiveness application in October for borrowers with loans of $50,000 or less. The new legislation and guidance simplifies the forgiveness application process for loans up to $150,000; we will provide more information as application materials become available.


6 Things Businesses Need to Know About Second-Draw PPP Loans

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Updated 6/1/21: The PPP loan application portal is closed. PPP applications are no longer being accepted. For more information on other grants, loans and programs available to small businesses, please see these articles:

30+ Grants, Loans and Programs to Benefit Your Small Business

A Practical Guide to Funding Your Small Business with Business Loans

7 SBA Loans to Know About

For more on stimulus aid still available, see our main story here.


In 2020, the federal government’s Paycheck Protection Program (PPP) provided forgivable loans to more than 5 million U.S. businesses as a way to help them make it through the coronavirus crisis. In 2021, many of those same businesses now have the opportunity to apply for a forgivable second-draw PPP loan, which can provide more short-term assistance.

Following new coronavirus stimulus legislation passed in December 2020, the Small Business Administration (SBA) began accepting applications for second-draw PPP loans on January 13, 2021. Applications for second-draw PPP loans will be open until May 31, 2021, or until the money allocated for the program runs out.

The terms and restrictions for second-draw PPP loans are not the same as for first-time PPP loans, so businesses should be well aware of the changes before applying.

Here are six things companies need to know about second-draw PPP loans.

What businesses are eligible for second-draw PPP

The second-draw PPP’s purpose is to offer financial assistance to businesses that were hit especially hard by COVID-19 disruptions. Ultimately, this means the second-draw loans are much more targeted. To qualify, companies must meet the following criteria:

  • The business must have previously received a PPP loan and used the full amount only for authorized uses.
  • The business must have fewer than 300 employees.
  • The business will need to show it had a 25% reduction in gross receipts during at least one quarter of 2020 versus the same quarter of 2019. (The SBA defines “gross receipts” as all revenue “including from the sales of products or services, interest, dividends, rent, royalties, fees, or commissions.”)

Terms of the second PPP loan

The maximum loan size for a second-draw PPP loan is $2 million, versus $10 million for a first-time PPP loan. Like other PPP loans, the interest rate for all second-draw PPP loans is set at 1%, and no personal guarantee or collateral is required. The “covered period” for the loan is between 8 and 24 weeks, and the period generally begins the day the loan funds are disbursed.

Second-draw PPP loans mature after five years. Both the government and lenders involved with PPP are not allowed to charge any fees for processing these loans.

Businesses that qualify for second-draw PPP loans should first contact whatever bank, credit union or fintech company they used to secure their first PPP loan.

Calculating the size of your second-draw PPP loan

For most businesses, the maximum loan amount businesses can apply for is 2.5 times the average monthly 2019 or 2020 payroll costs, up to $2 million. Notably, potential borrowers in the Accommodation and Food Services sector (most bars and restaurants would fall under this designation) can apply for 3.5 times the average monthly 2019 or 2020 payroll costs, up to $2 million. It’s strongly advised to work with an accountant or financial advisor when calculating your loan amount to ensure it is correct.

What funds can be used for

Businesses must spend at least 60% on payroll costs to get a second-draw PPP loan forgiven. The other 40% can be spent on the following non-payroll expenses:

  • Qualifying rent or mortgage interest payments.
  • Utility costs.
  • Operations expenses: cloud computing services, business software, human resources and related expenses.
  • Supplier costs: payments that go to suppliers who provide essential goods.
  • Worker protection expenses: expenses to employees safer during COVID-19, including personal protective equipment (PPE), drive-thru windows, sneeze guards and outside dining enclosures.
  • Property damage costs: costs related to civil unrest that occurred in 2020 that were not covered by insurance.

How to apply for second-draw PPP loans

Applications opened on January 13, 2021, and will close on March 31, 2021. Businesses that qualify for second-draw PPP loans should first contact whatever bank, credit union or fintech company they used to secure their first PPP loan. If the same lender offers second-round PPP loans, you will likely want to apply directly with them. Once the lender has processed the application, they will then send it to the SBA for approval. A sample application form can be found here.

However, not all lenders that participated in the first round of PPP are offering loans in the second round, so you may need to work with a new lender. Businesses can use the SBA’s Lender Match tool or find a bank by searching this map of eligible lenders.

Obtaining loan forgiveness

Like the first round, second-draw PPP loans are entirely forgivable if the funds are used for approved expenses between the 8-and-24-week “covered period” and fund disbursement is properly documented. To obtain forgiveness, employee and compensation levels must also be maintained during the covered period. Borrowers have 10 months after the last day of the covered period to apply for forgiveness, and if they don’t do it before then, they will have to start making payments on the loan. A sample of the forgiveness application for loans above $150,000 can be downloaded here, and a simple application for loans below $150,000 can be downloaded here. The SBA also released an “EZ” version of the forgiveness application for some borrowers with loans above $150,000.

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Published February 22, 2021

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On December 27, a new COVID relief bill was signed changing the Paycheck Protection Program (PPP). The highlight? Some businesses will be eligible for a second PPP loan. Here’s what you need to know.

What’s updated for the second round of PPP?

If you did not receive a PPP loan in 2020, you may be eligible to apply for your first PPP loan in 2021.

If you received a PPP loan in 2020, you may be eligible to apply for a second PPP loan if your business suffered a loss in revenue in 2020.

Whether you now take your first or second PPP loan, these loans will have the same terms as the original PPP loan.

This means, like the first PPP loan, the second round of PPP loans will also be fully forgivable if you follow the forgiveness guidelines. At least 60% of the loan must be spent on payroll and the rest spent on other eligible expenses.

If the loan is not forgiven, these loans would have an interest rate of 1% and a term of five years. Loan payments are deferred for 10 months after the covered period ends or when you receive a forgiveness verdict, whichever comes first.

Who is eligible for a PPP loan in 2021?

First draw PPP loans

If the following statements apply to your business, you are eligible to apply for your first PPP loan in 2021.

  • Your business was operational before February 15, 2020
  • Your business is still open and operational
  • You have no more than 500 employees
  • If your business has multiple locations, you have no more than 500 employees per location
  • Current economic uncertainty has made a PPP loan necessary to sustain your business

Second draw PPP loans

If the following statements apply to your business, you are eligible to apply for your second PPP loan in 2021.

  • You have used up your first PPP loan
  • Your business was operational before February 15, 2020
  • Your business is still open and operational
  • You have no more than 300 employees
  • If your business has multiple locations, you have no more than 300 employees per location
  • You can show a 25% or greater reduction in gross revenue

Further reading:How to Apply for Your Second PPP Loan

Showing a 25% or greater reduction in revenue

A 25% or greater reduction can be shown in one of two ways:

  • Comparing your annual gross receipts as reported on your tax return between 2020 and 2019
  • Comparing your gross receipts in any quarter in 2020 with your gross revenue in the same quarter of 2019

Gross receipts is the total amount of money your business has received in a given period. It includes sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.

For example, if a business wants to use the second quarter (Q2) of 2019 where they recorded $20,000 in gross receipts, they are eligible if their Q2 2020 gross revenue was $15,000 or less.

Further reading:How to Calculate a 25% Reduction in Revenue for PPP 2

How Bench can help

Comprehensive bookkeeping is the surest way to show a 25% reduction in revenue. Bench can complete your 2019 and 2020 books and create your annual profit and loss statements to represent your revenue reduction.

Whether you are applying for your first or second PPP loan, having your books completed by Bench also shows your net profit and/or payroll expenses to determine the PPP loan amount you are eligible for.

You can also submit these documents to your lender as the required supporting documents to accompany your loan forgiveness application. Learn how you can get started with Bench for free.

When do PPP applications open again?

Applications for both first and second time borrowers are open now, and close on May 31, 2021.

PPP loan amount calculation

The PPP loan amount will be calculated very similarly to the original PPP loan calculation. You are eligible for a loan equal to 2.5 times your average monthly payroll costs. Your average monthly payroll costs can be calculated using either of the following:

  • the calendar year of 2020
  • the calendar year of 2019
  • the one year period before the loan application

There are some exceptions to the loan amount calculation for certain businesses.

Food and accommodation businesses

Special consideration was given to the food and accommodation industries. Any business with a NAICS code beginning with 72 is eligible for a greater loan amount. You can check your NAICS code through a website like

Businesses in these industries are eligible for a loan equal to 2.5 times your average monthly payroll costs. The average monthly payroll cost is calculated the same: using the one year period before application, the calendar year of 2020, or the calendar year of 2019.

For these businesses, you are eligible for 3.5 times your average monthly payroll costs for your second draw PPP loan only.

Seasonal businesses

To qualify as a seasonal business, you must satisfy one of the following criteria:

  • You do not operate for more than seven months in any calendar year

  • During the previous calendar year, your gross receipts for six of the 12 months were no more than 33.33% of your gross receipts from the remaining six months (e.g. if you earn $100,000 from January through June, you earn no more than $33,330.00 from July through December)

Seasonal businesses are eligible for loans equal to 2.5 times their average monthly payroll cost. But the average monthly payroll cost can be calculated using any 12-week period between February 15, 2019 and February 15, 2020.

This is the same for businesses applying for their first or second PPP loan.

Partnerships without payroll

Partnerships are eligible for 2.5 times their average monthly distributions. Their average monthly distributions is calculated by taking their distributions from their 2019 or 2020 Schedule K-1, multiplying it by 0.9235, then dividing by 12.

Sole proprietors and independent contractors

As of March 3, 2021, sole proprietors and independent contractors determine their PPP loan amount using their gross income. If they are not running payroll, the calculation starts with their gross income as reported on line 7 on a 2019 or 2020 Schedule C. Use either this number, or $100,000, whichever is smaller. Divide this number by 12 and multiply by 2.5 to find your PPP loan amount.

If payroll is being run, take line 7 and subtract the payroll costs in lines 14, 19, and 26. Use a maximum of $100,000. Divide this number by 12 and add it to your average monthly payroll expense. Multiply by 2.5 to find your PPP loan amount.

Further reading:Self-Employment, 1099s, and the Paycheck Protection Program

The expansion of PPP eligible expenses

For the first rollout of PPP loans in 2020, the eligible expenses included payroll costs, rent, and utilities expenses.

The second stimulus bill has expanded on the eligible expenses you can use your PPP loan for. These new expenses include:

  • Operations expenditures: Any software, cloud computing, or other human resources and accounting needs (like Bench).

  • Property damage costs: Any costs from damages due to public disturbances occurring in 2020 and not covered by insurance.

  • Supplier costs: Any purchase order or order of goods made prior to receiving a PPP loan essential to operations.

  • Worker protection expenditures: Any personal protection equipment or property improvements to remain COVID compliant from March 1, 2020 onwards.

These new eligible expenses now apply to all PPP loans, including those obtained prior to August 8, 2020.

Requesting an increase in your previous PPP loan amount

A request for an increase in your previous PPP loan amount is now available to some borrowers. It is open to businesses that did not take the full loan amount or returned a portion of their first loan—so long as they haven’t already applied for forgiveness.

This allows businesses to receive the difference between their original loan offer and what they ended up taking.

For example, if a business was eligible for $20,000 but only took $15,000, they can apply to receive the $5,000 they previously opted not to take.

The application process may vary from lender to lender. Check in with your original PPP loan lender for more information.

Further reading:How to Request an Increase to a PPP Loan Amount

More PPP resources


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