What the New Round of PPP Loans Means for Your Business
The Paycheck Protection Program (PPP) has been renewed with a second round of relief funds for small business owners. For those that missed out on applying for the first round or got stuck somewhere in the middle of the approval process, here’s what you can expect from the extension.
What to expect from the second round of PPP loans
The unfortunate reality with the Paycheck Protection Program is that it is a highly sought after source of forgivable funding with a limited supply. The original $350 billion was claimed in just 13 days and that was when lenders were navigating a new application process and businesses were still unraveling what was necessary to apply.
Now, the extension is being rolled out far more carefully to prioritize actual small business owners. Rather than allowing larger banking institutions to initiate funding procedures, the applications are only being made available through community lenders and SBA partnered fintech organizations. This means, even though it is not guaranteed, you likely have a better shot of having your application approved this time around.
Still, a little help couldn’t hurt. Here are some key tips from those that received funding during the first round to help improve your chances of getting approved.
- Prepare your application and documentation ahead of time: You want to be sure you can apply as soon as the funds are available.
- Avoid larger banking institutions: There were reports that bigger banks prioritized PPP funding for larger customers. If you’re a smaller business and able to work with a small bank, credit union, or fintech lender, you may have a better chance.
- Chat with a real person: Much of the application process is automated, but it’s important to connect with a person from your lending institution. This can help ensure that you provided all necessary documents and that you have direct insight into the status of your loan.
While there’s still a great amount of uncertainty involved with the PPP, keeping these things in mind can help you when applying or reapplying this time around. Read on for more information regarding the extension and how to apply.
How much money is available in the second round of PPP loans?
The PPP extension will provide an additional $325 billion in low-interest small business loans, that will still be administered by SBA approved lenders. $284.45 billion of this new round of funding has been allocated for PPP second draw loans, which applies to those that already received funding or had their applications approved but never received a payout.
How do you know if you qualify for a PPP loan?
While the application process is being somewhat simplified this time around, the criteria for approval is a bit more complex. This is due to the stimulus being available for those that have already received relief funds. Here’s how it shakes out:
- First draw PPP loans: First time PPP loans for businesses who qualified under the CARES Act but did not receive a loan.
- Second draw PPP loans: Loans for businesses that obtained a PPP loan, but need additional funding (These are limited to $2 million max).
- Return or missed funds: Additional funding for businesses that returned their first PPP loan or did not receive the full amount they qualified for.
Your business qualifies for a first draw PPP Loan if
- Your business was in operation before February 15, 2020
- Your business has 500 or fewer employees (Or) falls under a certain size standard
- No pending loan applications (aside from Economic Injury Disaster Loans)
- The loan request is seen as necessary
Read up on the original CARES Act loan program for a full rundown of eligibility criteria.
Your business qualifies for a second draw PPP Loan if
- Your small business, nonprofit, veterans organization, agriculture coop, sole proprietor, or other eligible organization has less than 300 employees.
- You must have used or have a plan in place to use your original PPP funding.
- Your business must have at least a 25% reduction in revenues in at least one quarter in 2020 compared to that same quarter in 2019.
How do you apply for a PPP loan?
The application process and required supporting documents will be the same as the first round. While the necessary documentation may vary based on your specific business, chosen lender, and a number of other factors this is what you should have prepared to apply:
- PPP loan application: This document is available online and accepted by all SBA approved lenders. If you plan on applying through a fintech organization (ie Nav, PayPal, etc.) you may have to fill out an additional application through them.
- Payroll documentation: You can either run a report from your accounting system, or from your payroll system.
- Profit & Loss report from the last 12 months: Again, you should be able to get this from your accounting system. Not all banks will ask for this information.
- Your most recent tax return: Some banks will ask for your most recent tax return
- Articles of incorporation: You should have this document on file from when you formed your business. If you are applying for the loan from the bank you normally do business with, they may already have a copy on file.
- For nonprofits: You’ll need a copy of your bylaws and a copy of the minutes from the board of directors meeting where the board approved applying for the loan.
Getting approved for your loan quickly is important. Read our guide on what you can do to ensure your PPP application is approved. We also have an exhaustive checklist of everything you need to apply for PPP loans and SBA disaster loans.
Where can you apply for a PPP loan?
You can apply for a PPP loan at any SBA-approved lender. This includes banks and some technology companies like Nav and Divvy. Your bank may not be an SBA-approved lender, so it’s important to check with your own bank first and be prepared to shop around to find another lender who will process your loan if your own bank can’t or won’t do it for you.
Read our guide on all of your options for applying for a PPP loan.
Has the PPP loan forgiveness process changed?
If you received a PPP loan from the original CARES Act, the process for submitting for loan forgiveness remains the same. The purpose of the loan is still meant to help your business maintain payroll, rent, utilities, and other eligible expenses. If you let go of employees, cut payroll, or utilize the loan for ineligible expenses, the amount that can be forgiven will decrease.
Differences in the second round of PPP loans
The new round does have some differences that you should be aware of when applying, including:
- If you qualify for a loan amount of $150,000 or less, you can now fill out a simplified one-page forgiveness application.
- 60% of Second Draw Loans must be spent on payroll costs in order to be completely forgiven.
- Original and Second Draw PPP Loans will no longer be taxable to the borrower when forgiven.
Read our guide on how to apply for loan forgiveness for a full rundown of eligible expenses and how to calculate your potential loan forgiveness.
What do you need to do after you get a PPP loan?
Keeping close track of your expenses after you get your PPP loan is critical to ensure that you maximize the amount of the loan that will be forgiven. You’ll need to keep things like payroll records, receipts for rent or mortgage payments, and insurance receipts.
It’s also important to create a financial forecast and expense budget to make sure that you manage your PPP cash properly. If you’re a LivePlan user, we have a guide for using LivePlan to manage your PPP cash.
Alternatives to PPP
While a PPP loan may seem like the only option, there are alternatives still available to you. One such option is the newly replenished COVID-19 SBA Disaster Loan program, which allows for an immediate $10,000 grant when you apply. The Disaster Loan application portal is expected to be updated and ready for applicants the weekend of January 15, 2021. We’ll be updating our guide on eligibility and application requirements for the SBA Disaster Loan when that occurs.
Additionally, there are some state-funded resources similar to PPP available, as well as traditional venture capital options and tax breaks to explore.