The Small Business Administration’s (SBA) Paycheck Protection Program (PPP), as established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, is implementing its second round of financing resources this January 2021 with support from the US Treasury Department. The goal is to assist small businesses and eligible nonprofit organizations, as well as self-employed and independent contractors that continue having problems meeting payroll and operational costs during the coronavirus pandemic. The Paycheck Protection Program offers relief to small businesses through forgivable federal loans that help them retain and pay workers.
The first week of PPP2, beginning January 11, 2021, is only available to small businesses that apply at community financial institutions (CFIs) because these lenders provide funding for small businesses in underserved communities. The communities include minority-owned businesses that had difficulty securing financing during the initial round of PPP lending. The decision is meant to address complaints that the aid was not equitably distributed the last time around. Community lenders specifically focus on underserved borrowers, including women-led businesses and those run by Black, Latino, Asian, and other minority owners. Eventually, larger banks and lenders will be permitted to process loans, although no specific timeline has been set.
Previously, borrowers were limited to one loan, but this new funding will eventually be available to first-time and returning borrowers. Eligibility for a second loan is contingent upon suffering a sales drop of at least 25 percent of gross receipts in one or more quarters of 2020 as compared to the previous year. Second loans are also restricted to businesses with 300 or fewer employees. There is no requirement to apply for first-round PPP loan forgiveness before taking a second loan, and eligible applicants that did not receive a PPP loan before August 8, 2020, can apply for a PPP First Draw Loan by March 31, 2021.
If a business is applying for a PPP Second Draw Loan, they will usually be eligible if the borrower previously:
- Received and has (or will use) the full loan amount only for eligible expenses before the PPP Second Draw Loan is disbursed
- Has 300 or fewer employees, and
- Can demonstrate a minimum of 25 percent reduction in gross receipts comparable between 2019 and 2020 fiscal quarters.
To expedite funding for PPP2, working with a CPA or accountant is encouraged to submit accurate applications. Approval for Second Draw Loans will not be instantaneous as in the first round of funding because of fraud concerns, which may have previously been extensive. Automated data-verification steps must occur before application approval, and loans will take a minimum of one business day.
Under the Congressional coronavirus relief bill, the original PPP provided 5.2 million loans worth a staggering 525 billion dollars in its first two rounds of financial relief. Yet, for many businesses requiring large gatherings of people, or people in close quarters, such as restaurants, gyms, and retailers, the money was not enough as the pandemic and its associated shut-downs lasted far longer than anyone expected. Estimates are that well over 100,000 small US businesses have failed since the outbreak of the coronavirus. Moreover, many businesses could not get loans, like newly formed companies and those whose financial records did not meet bank threshold requirements. Some business owners applied to multiple banks due to a lack of response to their other applications, and many owners gave up in frustration or ran out of time and money.
The coronavirus pandemic is still adversely affecting life in the US, particularly for those who own or operate small businesses. The federal PPP2 program can offset some of the struggles to retain and pay employees and cover other small business operational costs like rent and utilities. As part of the overall COVID economic stimulus package, the changes in PPP2 rules are designed to bolster the truly small businesses before they fail due to circumstances well beyond their control.
If you are a small business owner and have questions about the PPP, please don’t hesitate to reach out. Please Contact our Chicago area offices by calling 312-878-0155 to schedule an appointment.