Summary List Placement
It has been more than ten months since applications originally opened for the Paycheck Protection Program, which means that for many borrowers, their original emergency relief funds have long since been spent.
Fortunately, the reauthorization of the program passed in December allows some borrowers to tap into the program for a second time.
Applications for the $806 billion Main Street rescue operation re-open on Monday, January 11 for certain first-time borrowers, and on Wednesday for second-time borrowers. (To be matched with a lender, click here.)
The process for obtaining a second loan will require borrowers to meet a slightly narrower standard than first-timers, according to the latest guidance from the Small Business Administration, released on January 6.
Below are some of the key limitations for prospective “second draw” borrowers.
Your original loan must be all used up
In order to be considered for a second PPP loan, you must show that you have used up the funds from the original one.
Not only that, but you will need to certify that the loan proceeds were spent “only for eligible expenses.”
In other words, don’t ask for more money if you used your first loan to buy a Tesla.
You need to still be in business and not in bankruptcy
This applies to first-time borrowers too, but unfortunately the slow pace of recovery means that for some PPP loan recipients, the original amounts weren’t enough to stay afloat.
If your business is closed permanently or in bankruptcy proceedings, you are not eligible to receive a second draw loan.
You must show actual revenue losses
If your revenue for any quarter of 2020 were down by 25% relative to the same quarter in 2019, you may be eligible for a second loan. (Seasonal businesses can use matching 12-week periods).
If you are down 25% for the whole year, that means you were definitely down at least that much for one of the quarters, and you’ll need to provide tax filings or bank statements to your lender to support your claims.
Also, do not include your first-draw funds when counting revenue.
You may not receive the Shuttered Venue grant
Theaters, museums, and other live performance venues are eligible for grants up to $10 million under a separate provision of the enhanced CARES Act. Businesses eligible for Shuttered Venue grants may receive up to 45% of their 2019 revenue, capped at $10 million and another payment in the spring of up to 50% of the first grant.
If your business receives one of those, it cannot get a second PPP loan.
Second draw loans are capped at $2 million, or $4 million for corporate families
The maximum size of second draw loans is substantially smaller than first-draw ones, which could be as large as $10 million.
That’s not likely to affect the majority of borrowers, since roughly 98% of loans in the original iteration of the program were less than $2 million.
A new cap of $4 million on what the SBA terms “corporate families” could put a squeeze on businesses, like some franchises, that are independently owned, but are part of a larger group.
Ultimately, actual loan limits are set using the same calculation as the original (2.5 times your monthly payroll), with the exception of hotels and restaurants, who can get 3.5 times.
You must have no more than 300 employees
With a few industry exceptions, the typical SBA definition of a small business is one that has less than 500 employees, but only those with 300 or less can receive a second-draw loan.
Additionally, while some publicly traded small firms got loans in the original round of funding, those businesses are excluded from future PPP loans.
At the other end of the size scale, the SBA is giving special preference to businesses with 10 or fewer workers. $25 billion in second draw loans are set aside for these businesses as well as those located in low- to moderate-income neighborhoods, capped at $250,000 per business entity. According to SBA guidelines, at least 25% of these funds must go to either group.
To further ensure aid gets to smaller and underserved businesses, the SBA will only accept applications from community financial institutions for at least the first two days when the PPP loan portal re-opens.
Plus, you can choose to work with a different lender
Finally, the SBA’s guidance does not require applicants to return to the same lender that handled their original PPP loan, though it does say that may make the documentation process a bit easier.
One reason you might consider changing banks, however, is that the reauthorization act offers early access to community financial institutions and those serving under-represented businesses.
Another might be to work with one of the fintechs like Kabbage, Bluevine, PayPal, or Quickbooks, whose participation in the original funding round was delayed.