As of today, small business owners struggling to cover overhead costs can apply for a second round of Paycheck Protection Program (“PPP”) tax-deductible loans. The program includes changes that targets smaller and minority-owned businesses. Here’s what you need to know, and how to apply.
What is the PPP?
As part of the CARES Act passed last March, the first iteration of the PPP provided a total of $519 billion for forgivable loans to help businesses cover payroll and overhead costs during the pandemic. In the latest relief package, a second round of first-come, first-serve PPP loans totaling $284 billion has been made available.
The U.S. Small Business Administration (SBA), which runs the program, has been criticized for inequitably doling out the first round of funding, as banks favored existing customers—which benefitted, among others, businesses run by members of Congress and large publicly traded companies that already have access to capital markets.
What’s different about “PPP 2.0"?
Qualified borrowers who have already received PPP loans will also be eligible for new, tax-deductible loans. However, funds have been set aside for first-time borrowers, with priority given to underserved minority-, women-, and veteran-owned businesses. Per the Journal of Accountancy, over $105 billion in funding targets small-sized businesses, with $15 billion reserved for lending by community financial institutions.Notably, to ensure an equitable distribution of funds, the SBA will only accept PPP loan applications from community financial institutions (as opposed to large banks) from today through Wednesday.In a change from the original PPP, publicly traded companies and businesses controlled by the president, vice president, head of executive departments, and members of Congress (or their spouses) are no longer eligible for PPP loans.Per the legal news site JD Supra, borrowers like local chambers of commerce, business leagues, real estate boards, housing cooperatives, and certain news stations are now more clearly eligible. Congress also confirmed that churches and religious organizations are eligible borrowers.The new legislation expands the scope of expenses that PPP loans can be used for, including business software or cloud computing expenses; property damage due to vandalism (if it’s not covered already by insurance); supplier payments; and COVID-related costs like improving ventilation or purchasing PPE.Borrowers can now set their PPP loan’s coverage period to be any length between eight and 24 weeks.To address worries about fraud, the SBA introduced new due diligence checks, which might slow down the application approval process.G/O Media may get a commission
Who qualifies for PPP 2.0?
Second-time loans are capped at $2 million and limited to borrowers with 300 or fewer employees. Borrowers must also demonstrate a quarterly revenue loss of 25% or more versus the same quarter in 2019.
First-time PPP borrowers will be subject to the program’s original eligibility rules, which allows for a maximum loan of $2 million to businesses with up to 500 employees, with no requirement to demonstrate a revenue loss.
For both types of borrowers, these loans can be forgiven if at least 60% of the total second-draw loan is used on payroll expenses to qualify for full loan forgiveness. The other 40% may be used on other eligible costs.
How to apply
Eligible businesses can apply for a PPP loan directly with an eligible private lender like a bank, community lender, or credit union. However, per AP, first-time borrowers applying through their community lenders have priority access today and tomorrow, while second-time borrowers will have access through those lenders on Wednesday. It is unclear at this time when exactly the PPP becomes accessible to all borrowers and lenders. The program will remain open for applications through March 31, 2021.
For more information and to receive an invitation to apply for a PPP loan, click here.
