The US treasury has announced that the SBA will be reopening the Paycheck Protection Program (PPP) for first and second-draw loans the week commencing January 11, 2021. PPP Loans can be used to help fund payroll costs, mortgage interest, rent, utilities, worker protection
costs related to COVID-19, as well as many other additional purposes.
Background to the Paycheck Protection Program
The Paycheck Protection Program was originally created as part of the CARES Act, issuing an initial $349 billion in small business funding back in April 2020. Once that money dried up, an additional $320 billion was injected into the program with an expiry date of August 8th, 2020.
No additional funding had been announced under the program until now. Signed into law on December 27th 2020, Congress has revived the PPP with an injection of $284.5 billion as part of its latest $900 billion coronavirus bailout package.
Round 3 of PPP – Overview & Key Updates
Round 3 funding, $284.5 billion, expands on the original PPP goals of providing loans to businesses for payroll and other costs but also sets out to specifically support female and minority ethnic group business owners.
At least $15 billion is being set aside for first-draw PPP loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate-income neighborhoods.
Key PPP updates include:
- PPP borrowers can choose their PPP loan’s covered period to be any length between 8-24 weeks to best meet their business needs.
- PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures.
- The Program’s eligibility is expanded to include; housing cooperatives, direct marketing organizations, among other types of organizations.
- The PPP provides greater flexibility for seasonal employers.
- Some existing PPP borrowers can request to modify their initial PPP loan amount – just speak to your SBA 7(a) approved lender who issued your loan in the first instance.
- Certain existing PPP borrowers are now eligible to apply for a second-draw PPP Loan.
Eligibility requirements for the latest round of PPP vary depending on whether you are a first or second time borrower through the program.
First and Second-Time Borrowers in Round 3
First-draw PPP loans of up to $10 million are available to businesses who were in operation by Feb 15, 2020 and meet the following criteria:
- Businesses with 500 or fewer employees.
- Sole proprietors, independent contractors, and eligible self-employed individuals.
- Not-for-profits, including churches.
- Accommodation and food services operations with NAICS codes starting with 72 that have fewer than 500 employees per physical location.
- Business groups who receive less than 15% of revenue from lobbying.
- Small group of other companies such as cooperatives, direct marketing organizations and some media companies in specific circumstances (see US treasury or SBA site for more detail).
Second-draw PPP loans of up to $2 million are available to SMEs who have already used the program, providing they have:
- 300 or fewer employees.
- Have used or will use the full amount of their first PPP loan on or before the expected date for the second PPP loan to be disbursed into their accounts. (First-draw funds must have been proven to have been spent on eligible expenses of course).
- Experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019. This is calculated by comparing gross receipts in any 2020 quarter with an applicable quarter in 2019.
Summary & How to Apply
Remember, borrowers under the paycheck protection program can qualify for full loan forgiveness if certain criteria is met surrounding how the funds are utilised. The major aspect being that all staff are maintained and at least 60% of the PPP loan is used to cover payroll.
Borrowers can apply for a first or second-draw PPP Loan until March 31, 2021, through any existing approved SBA 7(a) lender. All new first-draw PPP Loans will have the same terms regardless of the lender or borrower.