4 Reasons to Consider a Second Draw PPP Loan | Fora Financial Blog
4 Reasons to Consider a Second Draw PPP Loan
February 09, 2021
Reasons to Consider a Second Draw PPP Loan

4 Reasons to Consider a Second Draw PPP Loan

While they weren’t without controversy, Paycheck Protection Program (PPP) loans helped many small businesses that were struggling due to the COVID-19 pandemic. However, once the money ran out, millions of other small business owners remained in need of financing to sustain their operations.

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 Loans

Eligibility requirements for Second Draw PPP loans are more stringent than First Draw PPP Loans. To be eligible, a borrower must:

  1. Be an eligible business entity
  2. Employ no more than 300 employees
  3. Have experienced a revenue reduction of 25 percent or more in 2020 compared to 2019.
  4. Have received and spent their First Draw PPP Loan before receiving their second draw.

Of course, there are various exceptions to these rules. For example, the number of employees rule doesn’t apply to eligible news organizations and businesses in the food and accommodations sector.

In addition, certain types of organizations and affiliations can make you ineligible for a second draw. Finally, keep in mind that these are only the SBA’s eligibility rules. Individual banks may have their own additional rules to ensure you’re eligible for their loan program.


4 Reasons to Consider a Second Draw PPP Loan

1. Second Draw PPP Loans are Generally Forgivable

Since 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.

Additionally, you’ll need to spend these funds in the eight to 24-week period after you’ve received the loan proceeds.

2. Second Draw PPP Funds are Flexible

You 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.

By using your PPP loan to cover these essential expenses, you can invest more in your business’s 2021 recovery.

3. Loan Amounts Average $100,000+

In the first round of PPP loans, the average loan amount was $107,000. That said, your full amount is calculated by taking your average monthly payroll costs and multiplying them by 2.5. Therefore, if your average monthly payroll is $20,000, you can receive up to $50,000.

For Accommodation and Food Service businesses, the calculation uses 3.5 as the multiple. So if you run a restaurant and your average monthly payroll is $20,000, you can receive up to $70,000.

In this challenging business environment, 2.5 to 3.5 extra months of runway can be the difference between survival and bankruptcy. Just keep in mind that maximum loan amounts are capped at $2 million.

4. Funds are Limited

If you’re considering a Second Draw PPP Loan it’s important to apply as soon as possible. The first round of funds for the PPP program ran out in just 14 days.

The good news is the Treasury Department doesn’t expect funds to run out this time. Plus, they’re taking steps to ensure access for smaller lenders and their customers.  Still, there’s no reason to take any chances by dragging your feet.

Conclusion: Be Aware of the Application Deadlines

The SBA began accepting applications for a Second Draw PPP Loan on January 13, 2021. PPP Loan Applications will no longer be accepted after March 31, 2021.

To apply, you’ll need to contact a participating lender, which you can find using Lender Match. Once you connect with a lender, you’ll need to prepare and submit your loan application. This PPP Second Draw Borrower Application Form contains the information you’ll need to provide on your application.

Remember that this application process may vary depending on your lender. However, the terms of your loan will be the same regardless of the bank you work with.

If you have more questions about Second Draw PPP Loans, the SBA provides several helpful resources which you can find on their website.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].