Round Two: Reopening PPP Loans
Paycheck Protection Program Resumes in January 2021
Business owners are sighing with relief now that more support is officially on its way. Starting on Monday, January 11, 2021, at 9 AM Eastern Standard Time the SBA and the U.S. Treasury Department will begin accepting first draw PPP loan applications, and second draw PPP loan applications will be accepted starting January 13, 2021. First draw applications include those coming through community financial institutions (CFI), including community development financial institutions (CDFIs), minority depository institutions (MDIs), certified development companies (CDCs), and microloan intermediaries. Second draw applications will be accepted through traditional SBA lenders.
As Flatirons Bank, a community bank in Boulder, Colorado outlined, once the first draw applications have kicked off, second draw PPP applications are expected to begin being accepted by the SBA portal starting January 13th. An Interim Final Rule from the SBA and Treasury confirmed upcoming changes to the PPP2 loan program and procedures.
A Note on Terminology
To make sure we’re super clear on the updates to the PPP loan program here are a few definitions:
- First Round refers to the initial iteration of the PPP loan program that took place during the 2020 calendar year.
- Second Round or PPP2 refers to the updated loan program that launched on January 11th of the 2021 calendar year.
- First Draw refers to loans achieved through CFI organizations including CDFIs, MDIs, CDCs, and microloan intermediaries. This program kicked off on January 11, 2021 and requires the SBA Form 2483 application.
- Second Draw refers to loans achieved through traditional SBA lenders and was kicked off on January 13, 2021 and requires the SBA Form 2483-SD application.
In the following article, we have outlined what you can now expect from the second round of the PPP loan program and how you can prepare for submitting your loan applications.
Preparing for PPP2 Re-Launch
The fate of the Consolidated Appropriations Act, 2021, which among other things outlines funding for the second round of the PPP loan program, remained uncertain in the latter quarter of 2020 but was finally passed by Congress and signed into law by the President at the end of December. This Act set into action the second-largest federal stimulus package (after the CARES Act) and set the stage for business owners to soon apply for PPP2 loans.
In summary points provided by the Washington Post, some of the most notable Act inclusions were:
- $285 billion for first draw and second draw forgivable PPP2 loans.
- Dedicated set-asides for very small businesses and lending via community-based lenders including CFIs, CDFIs, MDIs, CDCs, and microloan intermediaries.
- Expanded loan eligibility for 501(c)(6) nonprofits.
- $15 billion in dedicated funding for live venues, independent movie theaters, and cultural institutions.
- $25 billion set aside for borrowers with 10 or fewer employees or loans less than $250K in low-income areas
- The last day to apply for first or second draw PPP2 loans is March 31, 2021.
The Denver Post put together some eye-opening statistics about how the first round of the PPP loan program was utilized in Colorado. In Colorado (where Simple Startup’s home base resides), a total of $10.37 billion was loaned to Colorado businesses, 95,114 ($3.07 billion) of those loans were made for under $150,000, and 13,402 ($7.3 billion) of those loans were made for more than $150,000. We expect that businesses who have now been under the pressure of the pandemic for nearly a year to similarly take advantage of PPP2 loans before the March 31st deadline.
Tax Treatment Transparency
Additionally, the Act finally made it clear to business owners and tax experts that recipients of PPP loans will, in fact, be able to deduct the payroll costs and other forgiven expenses paid for with their loans. The murky waters surrounding this issue could have caused a dramatic increase in taxes owed by small business owners who had already been struggling to survive in 2020. This clarification also includes a simplified loan forgiveness application for borrowers who received $50,000 or less.
PPP2 Loan Terms & Requirements
As mentioned before, the Interim Final Rule updated aspects of the PPP2 loan’s procedures and terms. The updated information is outlined below.
- Previous PPP recipients are eligible to receive a PPP2 loan as long as they meet the other eligibility requirements.
- The business must demonstrate a reduction in quarterly revenues in 2020 of at least 25% compared to the same quarter in 2019. For example, if Q3 of 2019 showed $100,000 in revenue then Q3 of 2020 must show $75,000 or less in revenue to be eligible to receive funds.
- The business must have less than 300 employees.
- 501(c)(6) are eligible, but any entity for which lobbying comprises more than 15% of receipts or activities is not eligible.
- Payroll, rent, covered mortgage interest, and utilities are still acceptable expenses under a PPP2 loan, but payroll expenses must still comprise no less than 60% of eligible expenses.
- However, covered expenses have been expanded to include PPE, costs associated with outdoor dining, and supplier costs that are essential to business operations.
Maximum PPP2 Loan Amounts
- Potential loan amounts will be, at maximum, 2.5 times the average monthly payroll of a business or $2 million, whichever is the lesser amount.
- Businesses in the restaurant and hospitality industries (NAICS Code 72) are eligible for loans for 3.5 times the average monthly payroll amount.
- Borrowers can choose to calculate their maximum loan amount by multiplying the average total monthly payroll in (a) the one-year period prior to the date on which the loan is made or (b) the 2019 calendar year.
- Borrowers can choose the length of their covered period so long as it is at least eight weeks in length and is not longer than 24 weeks. The coverage period for the original CARES Act was 8 weeks from the time of loan receipt and was then amended to allow borrowers to elect a 24 week coverage period.
Loan Interest Rate and Term
- Loans will be made at a 1% interest rate and a term of 5 years.
How Can You Prepare for Submitting a Loan Application?
First, you can gather documentation evidencing a 25% reduction in quarterly revenue for 2020 when compared to the same quarter in 2019. Second, you can gather documentation of your average monthly payroll amount to calculate the maximum amount of the second draw loan you are eligible to receive. With all of this information at hand, applying for a loan will be much easier to accomplish.
How to Apply for a PPP2 Loan?
First draw loan applicants can apply for loans starting on January 11th through March 31st and second draw loan applicants can apply for loans starting on January 13th through March 31st using the process below.
The Process to Apply for a PPP2 Loan
- Complete either SBA Form 2483 (first draw applicants) or SBA Form 2483-SD (second draw applicants) including the required certifications.
- Gather documentation to evidence a 25% reduction in quarterly revenue for 2020 over the same quarter in 2019.
- Gather documentation to evidence your average monthly payroll amount to be used in calculating maximum loan amount eligibility by multiplying the average total monthly payroll in either the one-year period prior to the date on which the loan is made or the 2019 calendar year.
- Return your completed application and all supporting documentation to your lender.
- Stay in communication with your loan point person in case follow up information and documentation is required to fully complete your loan application and submission.
- Remember all loan applications must be received by March 31, 2021.
What SBA Lenders Can You Work with on a PPP2 Loan?
We suggest working with your current banking institution or SBA lender. If you don’t already have a lender in place, a great place to start is the below list of our top 20 SBA preferred lenders, or you can take the more non-traditional route and use one of the following 10 online lending options.
Top 20 SBA Preferred Lending Institutions
- Live Oak Banking Company
- Newtek Small Business Finance
- Wells Fargo
- Byline Bank
- Huntington National Bank
- Celtic Bank Corporation
- JPMorgan Chase
- U.S. Bank
- Readycap Lending
- Justine Petersen Housing and Reinvestment Corporation
- Business Center for New Americans
- Economic and Community Development Institute
- Oregon Association of Minority Entrepreneurs, Credit Corp
- Community Ventures Corporation
- Renaissance Economic Development Corporation
- Rural Enterprise Assistance Project/Center for Rural Affairs
- Flagship Enterprise Center
Online PPP Enabled Lenders
2021 is Our Year
We have a much better feeling about doing business in 2021 over last year, and the resumption of the PPP loan program is a good sign. If you’re looking for support in maximizing your business’s success over the coming year including recommending SBA lenders, managing the PPP2 loan application process, guidance in allocating PPP2 funds, and getting your financials in order so you can file your business tax return, we’d be happy to help. Simply book time on our calendar to speak to one of our experts and we’ll manage the rest.