The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) created the Paycheck Protection Program (PPP) in March 2020. The goal of the loan program was to provide much-needed funds to businesses, allowing them to keep their team employed and providing financial support for other business operations. The loans were guaranteed by the U.S. Small Business Administration (SBA) and were forgivable, provided companies used most of the money to maintain their payroll. Famously, funds for the first round of PPP loans were used up with just a few weeks of the program opening. Congress added more money to the program in August to provide more support to businesses.
What Is the PPP Round 2?
At the end of 2020, Congress passed another stimulus package. The new package included more funding for the PPP. The package also opened the PPP up to more businesses and allowed companies who borrowed money in the first round to borrow additional funds, if needed, in the second round. Although the rules for round 2 of the PPP are similar to the rules of round 1, there are some notable differences, particularly for companies seeking a second round of funding.
Paycheck Protection Program Eligibility Requirements
Eligibility requirements for PPP round 2 are based on whether a business received funding in the first round or not. Companies seeking funding for the first time need to have fewer than 500 employees (there are some exceptions for certain industries) and need to have been in business on February 15, 2020. Independent contractors and sole proprietors are also eligible for the loans, provided their businesses had a profit in 2019. Certain organizations, such as 501(c)6 non-profits are now also eligible (they weren’t eligible for the first round of funding).
Eligibility requirements are stricter for companies that want to receive a second round of funding from the PPP. Those seeking a second loan need to have fewer than 300 employees. Their company also needs to have shown at least a 25% drop in gross receipts during any quarter of 2020, compared to the same quarter in 2019.
The second round of the PPP also includes grant money for certain companies. Museums, movie theaters, and live entertainment venues that can show at least a 25% drop in revenue may be eligible for a grant. Companies that receive grants under the PPP can’t also get loans.
How Big Can the Loan Be?
The amount of the PPP loan depends on the company and whether it is the first or second time it’s applied for the program. Recipients of funding during round 1 of the program can apply for loans of up to $2 million in funds during round 2. First-time applicants can apply for loans of up to $10 million, or 2.5 times their average monthly payroll (whichever is smaller). Sole proprietors can apply for 2.5 times their average monthly profit, as reported on Schedule C.
The loans are forgivable if at least 60% goes to pay employees. The remaining 40% can be spent on expenses such as a mortgage or rent, utilities, and operating expenses, as well as expenses for adopting social distancing and other safety practices at a business.
If a company’s loan isn’t forgiven, the interest on it is 1%. The typical repayment term is 5 years.
How to Apply for PPP Round 2
Applications for the second round of the PPP are open through March 31, 2021. Although the loans are guaranteed by the SBA and you need to complete either SBA Form 2483 if you’re borrowing for the first time or SBA Form 2483-SD if you’re borrowing for a second, the funds themselves come from banks. If you are considering applying, you might choose to work with a bank you already have a relationship with. If you’re getting a second-draw loan, you’ll want to work with the same lender who issued your first loan.
If you’re not sure which lender to work with, a virtual CFO can help you find a lender or build a relationship with a bank. Your virtual CFO can also walk you through the application process, helping you gather the appropriate paperwork and ensuring that your business meets the requirements for either a first or second PPP loan.
A virtual CFO can do more than help you secure the PPP funding you need to keep your business afloat. They can also help you map a plan for profitable growth in 2021 and in the years to come. Hire your virtual CFO today to learn more.