What You Need to Know About Second Draw Paycheck Protection Program Loans

PPP Loans

When the coronavirus pandemic hit the United States in early 2020, President Donald Trump and Congress acted quickly to establish Paycheck Protection Program loans (PPP loans) to make aid available to small business owners. However, the original PPP quickly ran out of money and had several flaws that meant small business owners didn’t always receive the emergency financial help they needed.

One of the early problems with PPP loans is that some of it ended up going to large corporations instead of the small businesses it was supposed to target. Recipients also had a lot of confusion around these issues:

  • Tax implications of PPP loans
  • Acceptable uses of the funds
  • Whether they had to repay the loan
  • How much of the loan they had to repay

In early January 2021, the Small Business Administration (SBA) released guidelines for the second round of PPP loans known as Second Draw Paycheck Protection Program Loans.

Guidelines Passed in the Second Stimulus Package

To help you decide if PPP loans are right for your small business in 2021, we provide the most important program criteria below.

  • The SBA must receive your loan application by March 31, 2021.
  • The maximum PPP loan amount for this second round is $2 million dollars.
  • Eligibility for the second round of PPP loans depends on whether the SBA resolved any outstanding issues with your first loan application and/or distribution.
  • If interested in PPP loans, you should start your application with a local bank.
  • You can deduct expenses you pay for using PPP loans from your business taxes. Keep in mind that you must spend at least 60 percent of the proceeds on payroll. You can spend the other 40 percent of the loan on typical business expenses like rent or mortgage. The purchase of personal protective equipment for yourself and employees is also acceptable. As of early February 2021, the SBA and Internal Revenue Service (IRS) have not yet released detailed tax information regarding PPP loans.
  • You can apply for second draw PPP loans if you have 300 employees or less and had at least a 25 percent reduction in gross receipts during any quarter in 2020 compared to the same quarter in 2019. PPP loans over $150,000 require immediate documentation of lost revenue while applicants applying for less can wait until they apply for loan forgiveness.
  • Refer to your payroll costs from either 2020 or 2019 to help determine your maximum loan amount.
  • If you are applying for PPP loans for the first time, the criteria from the first round of stimulus appropriations applies. You can have up to 500 employees and not have to provide documentation of lost revenue.

For specific questions about the second round of PPP loans, we recommend that you click here to view the answers to frequently asked questions. The SBA posted this information on January 19, 2021.

Business Partner Alliance is Available to Help You Explore Options

We understand that the above is a lot of information to process. You are welcome to request a consultation with Emory Ware, an experienced small business consultant, for greater input and advice. We look forward to helping you choose the best financing option for your small business.