On January, 11, 2021, the SBA, in consultation with the U.S Treasury Department, reopened the Paycheck Protection Program (PPP) for First Draw loans for those small businesses that did not apply in 2020. Designed to provide a direct incentive for small businesses to keep employees on payroll, the PPP Loans can be used to help fund payroll costs, including benefits, and 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. PPP Loans are forgivable if all employee retention criteria by the SBA are met and the funds are used for eligible expenses. First Draw PPP Loans will be accepted until March 31, 2021 through participating lenders.
Some unique characteristics of PPP Loans include:
- 1% interest rate.
- Loans equal to 2.5X the average monthly payroll costs
- Loans issued prior to June 5, 2020 have a maturity of two (2) years, while loans issued after June 5, 2020 have a maturity of five (5) years.
- Loan payments will be deferred for borrowers who apply for loan forgiveness until the SBA remits the borrower’s loan forgiveness amounts to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the week of the covered period for the borrower’s loan forgiveness.
- No collateral or personal guarantees required.
- Neither the government nor lenders will charge small businesses any fees.
The following entities affected by COVID-19 may be eligible:
- Sole proprietors, independent contractors, and self-employed persons.
- Any small business concern that meets SBA’s size standards
- Any business, 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 the greater of:
- 500 employees, or
- That meets the SBA size standard if more than 500
- Any business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location.
On January 13, 2021, the SBA began accepting applications for Second Draw PPP Loans for certain eligible borrowers that previously received a First Draw PPP Loan. Like the First Draw PPP Loans, Second Draw PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the covered period following loan disbursement: (1) employee and compensation levels are maintained in the same manner as required by the First Draw PPP Loan; (2) the loan proceeds are spent on payroll costs and other eligible expenses; and (3) at least 60% of the proceeds are spent on payroll costs.
A borrower is eligible for a Second Round 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. The maximum loan amount for a Second Draw PPP Loan is 2.5X the average monthly 2019 or 2020 payroll costs up to $2 million. For borrowers with an NAICS code that begins with 72 (such as hotels and restaurants), the maximum loan amount for Second Draw PPP Loans is 3.5X average monthly 2019 or 2020 payroll costs up to $2 million.
The SBA will accept Second Round PPP Loan applications until March 31, 2021. Borrowers can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit institution, eligible non-bank lender, or Farm Credit System institution that is participating in PPP. All Second Draw PPP Loans will have the same terms regardless of lender or borrower.