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Small Businesses Get Second Boost for COVID-19 Relief

The federal government has funded a second round of the Paycheck Protection Program. We gathered some basic facts to help you understand how the program supports small businesses struggling through the COVID-19 financial crisis.

The pivot to remote work has been great for some businesses, but not everyone can work from home. Offices, restaurants and storefronts across the country are eerily quiet, a visible sign of the ongoing economic crisis caused by the pandemic.

Last spring, 5.2 million small businesses received some of the $523 billion in aid that was available through the Paycheck Protection Program (PPP). In December, the federal government added a $284 billion infusion to the program. The U.S. Small Business Administration reopened the application window in mid-January.

Lenders are beginning to accept applications, but the rules and requirements are a little complicated, so we pulled together some information to help explain the basics.

What is the PPP?

The PPP is a government program designed to help small businesses through the COVID-19 pandemic, with a primary focus of helping them continue to pay their employees. It was initially created under the CARES Act and is administered by the U.S. Small Business Administration (SBA).

PPP borrowers can generally use PPP funds for  payroll costs, employee benefits, mortgage interest, rent, utilities, worker protection related to COVID-19, uninsured property damage caused by looting and vandalism during 2020 and certain supplier costs and operating expenses.

If it's a public program, why do I have to apply for it through a financial institution?

The federal government isn't set up to process applications and directly loan funds to the number of businesses that are expected to take advantage of PPP. The SBA — a government agency — administers the program, and the funds are distributed by lenders such as credit unions, banks and community financial institutions.

Is it a loan or a grant? Does my business have to pay it back?

It's a loan — but, if you satisfy certain conditions  during what the SBA calls the 8- to 24-week covered period after you receive funds, the SBA will forgive all or a portion of the loan so that you won't have to pay back the forgiven amount. At a high level, these are the primary conditions you must satisfy to seek loan forgiveness:

  • Maintain employee and compensation levels.
  • Spend loan proceeds on payroll costs and other eligible expenses.
  • Spend at least 60 percent of proceeds on payroll costs.

What if I don't satisfy the forgiveness terms?

If you don't satisfy the forgiveness criteria, then you will be required to pay the loan back.

PPP loans have:

  • An interest rate of 1%.
  • A maturity of two years if they were issued before June 5, 2020. If they were issued after June 5, 2020, the maturity is five years.
  • A deferment period. If you apply for loan forgiveness, the loan payment will be deferred until SBA pays your lender the forgiven amount. If you don't apply for loan forgiveness, your payments will be deferred for 10 months after the end of the covered period (8 to 24 weeks).
  • No collateral or personal guarantee requirement.
  • No fees.

I participated in the last round of PPP, but my business is still struggling. Is funding available for businesses that received help during the first round?

Yes. PPP has two main categories: First Draw, for first-time participants in the program, and Second Draw, for businesses that are applying to receive a second round of funds. There are certain additional rules that apply to this current round of PPP loans.

First Draw has additional subcategories and eligibility requirements for businesses reapplying or requesting an increase to their original First Draw loan.

What are the eligibility requirements for first-time vs. second-time applicants?

To qualify for either loan type, you must first meet all eligibility requirements for the first round of PPP established under the CARES Act in March 2020. This includes the requirement that your business was in operation on Feb. 15, 2020.

Without getting into all the details and special circumstances, here's how the eligibility requirements differ, generally:

First Draw

The SBA website has detailed First Draw eligibility information, but generally:

  • You didn't draw PPP funds the first time.
  • You have an eligible small business or non-profit 501(c)3. This includes sole proprietorships, independent contractors and self-employed persons, private non-profit organization or 501(c)(19) veterans organizations affected by COVID-19.
  •  You have fewer than 500 employees.

Second Draw

The SBA website has detailed Second Draw eligibility information, but generally:

  • You meet all First Draw eligibility requirements first. (Second Draw requirements are in addition to First Draw requirements).
  •  Your business used, or will use, the full amount of the First Draw PPP loan only for authorized uses.
  • Your business has 300 or fewer employees.
  • You can show at least a 25% reduction in gross receipts in any 2020 quarter compared with the same quarter in 2019.

How much money can I borrow?

It's important to note that you are eligible for PPP funds to compensate U.S. resident employees only.

For both First and Second Draw, the loan amount is generally up to 2.5 times your average monthly payroll, not to exceed annual compensation of $100,000 per employee, during the previous 12 months.

For accommodation and food service employers (NAICS 72) applying for Second Draw funds, the amount is generally up to 3.5 times your monthly payroll.

The maximum for First Draw borrowers is $10 million. The maximum for Second Draw borrowers is $2 million.

If you are a sole proprietor, independent contractor or self-employed, the maximum you can borrow for the sum of any compensation that is wages, commissions, income or other compensation is $100,000.

When will applications be accepted?

Most participating lenders are presently accepting applications.

Didn't all the money run out last time? Is that expected to happen again?

The money did run out last time — just 13 days after the program started in April. Congress responded by adding more funds. When the program closed in August 2020 (and before the recent re-opening), more than $120 billion was left over.

One difference this time is that the program sets aside $25 billion in Second Draw PPP loans to help smaller businesses with smaller loan amounts — those with up to 10 employees and loans of $250,000 or less for businesses in low- or moderate-income neighborhoods.

What if my business needs help but I don't qualify for PPP? Are there other programs available?

Yes, there are several COVID-19 relief options for small businesses other than PPP. To name a few: