Fortunately, the COVID-19 Economic Relief Bill, signed into law in December 2020, included $325 billion for small businesses. Of that amount, $284.5 billion was earmarked for first and second Paycheck Protection Program (PPP) loans. As a result, the Small Business Administration (SBA) reopened the PPP loan program in January 2021. Now, small business owners have a short window to apply again—or for the first time—for these very attractive loans. However, as you might expect, there’s plenty of red tape to jump through in order to obtain one of these coveted PPP loans. Before we review why you should consider a Second Draw PPP Loan, first we’ll define them and their eligibility requirements.
What is a Second Draw Loan?A Second Draw PPP Loan is part of the Paycheck Protection Program established by the CARES Act. This program, administered by the SBA, was created to help small businesses keep their workforce employed during the Coronavirus pandemic. After closing the loan program in 2020, the federal government passed another bill that enabled the program to reopen. As part of this reopening, Second Draw PPP Loans have been made available with the same general loan terms as First Draw PPP Loans. If you received a first draw loan, you won't be eligible to receive a second draw loan in most cases.
Eligibility Requirements for Second Draw PPP LoansEligibility requirements for Second Draw PPP loans are more stringent than First Draw PPP Loans. To be eligible, a borrower must:
- Be an eligible business entity
- Employ no more than 300 employees
- Have experienced a revenue reduction of 25 percent or more in 2020 compared to 2019.
- Have received and spent their First Draw PPP Loan before receiving their second draw.
4 Reasons to Consider a Second Draw PPP Loan
1. Second Draw PPP Loans are Generally ForgivableSince these loans are forgivable they’re a no-brainer for many businesses. The only caveat is that you must use your loan to cover certain expenses in a given timeframe. More specifically, to be eligible for full forgiveness, you must:
- Maintain employee and compensation levels as required for the First Draw PPP loan.
- Spend the loan proceeds on eligible expenses, including at least 60 percent on payroll.
2. Second Draw PPP Funds are FlexibleYou can use your second draw on any of the following:
- Payroll costs, including benefits.
- Mortgage interest, rent, and utilities.
- Worker protection cost related to COVID-19.
- Uninsured property damage caused by looting or vandalism in 2020.
- Certain supplier costs and operating expenses.