Paycheck Protection Program (PPP) loans: Round 2 update

The Small Business Administration (SBA) recently released more information regarding the second round of Paycheck Protection Program (PPP) loans, as the application process opened Monday, Jan. 11 under the $284 billion program authorized by the $900 billion stimulus relief bill signed on Dec. 27, 2020.

The loans are available to both first-time and second-time borrowers. In an effort to give priority to underserved businesses including veteran, minority, and women-owned businesses, only loans from community financial institutions will be accepted initially (starting Jan. 11 for first-time borrowers and Jan. 13 for second-time borrowers). It has not yet been announced when applications will begin being accepted from other lenders other than “soon,” but the last day for application has been announced as March 31.

First time borrowers are eligible for up to $10 million, while second round borrowers’ loans are capped at $2 million. The maximum amount is, again, 2.5 times average monthly payroll costs (3.5 times for hotels, restaurants, and other accommodation/food service businesses). Interestingly, average monthly payroll costs can be calculated in one of three ways:

  1. Calendar year 2019;
  2. Calendar year 2020; or
  3. The 12 months prior to the loan.

First-time borrowers must have fewer than 500 employees and do NOT need to demonstrate a revenue drop as required for second time borrowers as outlined in item No. 2 immediately below.

Second draw borrowers must:

  1. Have fewer than 300 employees;
  2. Be able to demonstrate a revenue decline of at least 25% for any quarter of 2020 relative to the same quarter in 2019;
  3. Have used (or will use) the full amount of the first PPP loan; and
  4. Not be permanently closed. Temporarily closed businesses are eligible.

Loan proceeds may be used for the following:

  1. Payroll costs (at least 60% must be used in this category);
  2. Rent, utilities, mortgage payments, software, human resources, and accounting;
  3. Property damage sustained during protests that were not covered by insurance; and
  4. Personal protective equipment.

The application process (once open) will be similar to the first round. You may wish to use the same lender as used in the first round given that some have already opened portals where preliminary applications can be submitted (corresponding to less paperwork). We encourage clients to be prepared to apply promptly.

Loan forgiveness is somewhat more flexible with the second round.

  1. The covered period can be any length between eight and 24 weeks as best meets business needs; and
  2. Borrowers of $150,000 or less can submit a one-page certification detailing number of employees retained as a result of the loan, total loan amount, amount of loan spent on payroll costs, and proof of qualifying revenue loss (if not submitted with application).

As the COVID-19 pandemic has raged on, this program’s second iteration hopefully serves as a positive sign for business owners as many have expressed the need for further support.

Brion Collins, CFP, CLU, ChFC is managing director of the Delafield, Wisconsin office of Wealthspire Advisors.

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