How to Navigate the Latest Small Business Relief Plan and Get a PPP Loan

Jim Probasco has 30+ years of experience writing for online, print, radio, and television media, including PBS. His expertise includes government programs and policy, retirement planning, insurance, family finance, home ownership and loans. He has a bachelor's from Ohio University and Master's from Wright State University in music education.

Dr. JeFreda R. Brown is a financial consultant, Certified Financial Education Instructor, and researcher who has assisted thousands of clients over a more than two-decade career. She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University.

The Consolidated Appropriations Act (CAA), 2021, signed into law Dec. 27, 2020, marks the third round of funding for the Paycheck Protection Program (PPP), which last ran out of funds Aug. 8, 2020.

If you were unable to secure a PPP loan during the first two rounds, new CAA funding of $284 billion is now available. The new funds come with relaxed guidelines that make it easier for small businesses to obtain an original PPP loan and even allow those who received funding in Round 1 or Round 2, to secure a second draw (additional) loan this time around.

Key Takeaways

• Changes to the PPP program provide targeted access to very small businesses and certain previously excluded individuals.
• A new round of COVID-19 relief legislation provides $284 billion in additional PPP loan funds for small businesses.
• The legislation mandates that $35 billion of that money will go to first-time (first-draw) borrowers with 500 or fewer employees.
• An additional $15 billion will provide first-draw loans for small businesses with 10 or fewer employees.
• Guidance for this round of funding was released on Jan. 6, 2021, by the Small Business Administration (SBA).
• Additional rule changes announced Feb. 24, 2021, and passage of the PPP Extension Act March 30, 2021, provided further guidance.

PPP Rule Changes Starting Feb. 24, 2021

The Biden administration announced on Feb. 22, 2021, several changes to the PPP program designed to enable the smallest businesses, including some left behind in previous relief efforts, to get help. The changes are outlined below.

• Beginning Wed., Feb. 24, 2021, businesses with fewer than 20 employees will have an exclusive two-week window to apply for PPP funding. During this period, larger businesses will not be allowed to apply for a PPP loan.
• The PPP loan calculation formula is being revised to allow sole proprietors, independent contractors, and self-employed individuals to receive more financial support. The rule changes also allocate $1 billion in PPP funds for these types of businesses in low-and moderate-income (LMI) areas.
• Small business owners with non-fraud-related felonies will now be eligible for PPP relief unless the applicant or owner is incarcerated at the time of the application.
• Those who are delinquent on federal student loans will now be eligible for a PPP loan.
• Non-citizen small business owners who are lawful U.S. residents will also be eligible and allowed to use their Individual Taxpayer Identification Numbers (ITINs) to apply. This category includes Green Card holders and those here on a visa.
• With passage of the PPP Extension Act, applicants have until May 31, 2021, to apply for a PPP loan, lenders have until June 30, 2021, to process those applications, and the covered period for all PPP loans extends to June 30, 2021.

Phased Reopening of PPP Loan Program

The U.S. Small Business Administration (SBA) and Treasury Department announced that the Paycheck Protection Program (PPP) would reopen the week of January 11, 2021, for new borrowers and existing PPP loan recipients.

Initially, only community financial institutions, including Community Development Financial Institutions (CDFIs), minority depository institutions (MDIs), certified development companies, and microloan intermediaries were able to make first-draw PPP loans beginning Monday, January 11. Second-draw PPP loans were available through the same lenders starting Wednesday, January 13. Small lenders with less than $1 billion in assets were able to make first- and second-draw loans starting Friday, January 15.

All participating PPP lenders came on board offering loans to all participants Tuesday January, 19. Guidance in the form of Interim Final Rules (IFRs) for both first- and second-draw PPP loans was released Jan. 6, 2021.

Short History of PPP Funding

The Paycheck Protection Program (PPP) loan program was created by the CARES Act with $349 billion in funding. Those funds, which were expected to last until the end of June 2020, ran out on April 16.

With some tweaks to the allocation process to provide more money to struggling small businesses, the second round of $320 billion lasted until Aug. 8, 2020, after which new PPP loan applications were no longer accepted until now.

The $284 billion allocated in Round 3 will be made available through May 31, 2021, or until funds are expended. This funding round expands on the original PPP goals and guidelines even more than Round 2. The table below shows PPP funding to date.

Sources: H.R. 748, H.R. 266, H.R. 133 H.R. 1319

Round 3 PPP funding contained in the CAA, includes significant changes to the Paycheck Protection Program Flexibility Act of 2020, which also made significant changes to the original Paycheck Protection Program that was part of the CARES Act.

The new legislation, for example, expands permissible uses of PPP funds beyond payroll, covered utilities, and covered rent. It provides flexibility in choosing the covered period for your loan (8 to 24 weeks or until June 30, 2021, whichever comes first), and simplifies the forgiveness process for loans of $150,000 or less.

Set-Asides for Minority, Underserved, Veteran, and Women-Owned Businesses

In order to get more funds to small businesses left out of previous PPP funding rounds, Congress set aside additional monies and a "first-in-line" application process for minority and other underserved businesses as part of the structure of the CAA, 2021.

• $15 billion through community financial institutions;
• $15 billion through Insured Depository Institutions, Credit Unions, and Farm Credit System Institutions with consolidated assets of less than $10 billion;
• $35 billion for new first-draw PPP borrowers; and
• $15 billion and $25 billion for first-draw and second-draw PPP loans, respectively, for borrowers with 10 or fewer employees or for loans less than $250,000 to borrowers in low-or moderate-income neighborhoods.

CAA further provides that at least 25% of each set-aside will go to each of the targeted groups:

• SMBs with a maximum of 10 employees; and
• Loans under $250,000 to businesses in low-or moderate-income neighborhoods.

First and Second-Draw PPP Loans

The reopening of the Paycheck Protection Program (PPP) on January 11, 2021, included the creation of two PPP loan tiersFirst-Draw and Second-Draw.

Generally speaking, First-Draw loans are for those who have never received a PPP loan, although there are exceptions listed under eligibility below. Second-Draw loans are for those who received a PPP loan under previous funding and now need more funds to stay in business.

First-Draw PPP Loan Details

The Paycheck Protection Program (PPP) First-Draw loan is designed to help small businesses keep workers on payroll. You can use First Draw PPP funds on payroll, benefits, mortgage interest, rent, utilities, worker protection related to COVID-19, uninsured property damage, and some operations and supplier costs.

Your loan will be forgiven if you meet employee retention criteria and use the money for eligible expenses. PPP First-Draw loans:

• Have an interest rate of 1%
• Have a maturity of five years
• Let you defer payments, provided you apply for forgiveness, until the SBA remits your loan forgiveness amount to your lender
• Let you defer payments for 10 months after the end of the covered period for your loan if you don't apply for forgiveness
• Require no collateral and no personal guarantee
• Have no fees

The maximum loan amount for a First-Draw PPP loan is 2.5 times your average monthly payroll costs in 2019 or 2020 up to $10 million.

First-Draw PPP Loan Eligibility

If your business was affected by COVID-19, you may be eligible for a First-Draw PPP loan if you did not receive a PPP loan under either of the first two funding programs and you are:

• A sole proprietor, independent contractor, or self-employed person
• A small business that meets SBA’s size standards (either the industry size standard or the alternative size standard)
• A business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with 500 or fewer employees OR
• That meets the SBA industry size standard if more than 500
• A business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 people per location

If you received a PPP loan in the past but did not receive forgiveness by December 27, 2020, you may be eligible to apply for a makeup First-Draw loan.

If you received a PPP loan under previous funding but did not receive loan forgiveness by December 27, 2020, you may:

• Reapply for a First-Draw PPP Loan if you previously returned some or all of your First-Draw PPP Loan funds, or
• Under certain circumstances, you may request a modification of your First Draw-PPP Loan amount if you previously did not accept the full amount for which you were eligible

Ineligible Entities

Businesses or organization that are not eligible for a First-Draw PPP loan include:  

• Companies whose primary activity involves lobbying
• Companies with 20% or more ownership by China
• Companies with a board member who is a resident of China
• Entities with a Shuttered Venue Operator (SVO) Grant under Section 24 of the new law
• Publicly traded companies
• Companies not normally eligible by SBA guidelines unless specifically allowed by the new law.

Second-Draw PPP Loan Details

Loan terms for a Second-Draw loan are the same as for a First-Draw PPP loan. Second-Draw loans are for borrowers who previously received a PPP loan under previous funding and meet the eligibility requirements listed below.

Second Draw PPP Loans can be used for payroll, benefits, mortgage interest, rent, utilities, COVID-19-related worker protection, uninsured property damage costs, certain supplier costs, and operations expenses.

The maximum loan amount for a Second-Draw PPP loan is 2.5 times your average monthly payroll costs in 2019 or 2020 up to $2 million. If you are in the Accommodation and Food Services sector, you can borrow 3.5 times your average monthly payroll costs, still limited to $2 million.

Second-Draw PPP Loan Eligibility

A borrower is generally eligible for a Second Draw PPP Loan if the borrower:

• Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
• Has no more than 300 employees; and
• Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020  

Application Process for First and Second-Draw PPP Loans

As noted above, applications for first- and second-draw PPP loans will be accepted by all SBA-approved lenders through May 31, 2021. Lenders have until June 30, 2021, to process loans.

There are two things you need to do:

1. Download and complete the 5-page first-draw loan application or 6-page second-draw application from the SBA website; and
2. Contact an approved SBA lender and apply.

Keep in mind that first draw PPP loans are generally only for businesses that have never received a PPP loan in the past—with exceptions noted in the eligibility section. Second-draw loans are for those who received a PPP loan earlier.

If you need help locating an approved lender, the SBA provides an online Lender Match tool or you can check the PPP Lender List, organized by state.

Gather Payroll and Records

Whether you apply for a first or second draw loan you will need payroll and other records in order to complete the application:

• Pertinent tax returns (2019 and 2020)
• Payroll records to help verify the amount you are requesting
• Documentation showing the legal structure of your company
• Some demonstration of how COVID-19 has impacted your business

Apply as Soon as Possible

Although the legislation calls for Round 3 PPP loan applications to be accepted through May 31, 2021, past experience suggests the actual availability of funds could be much less. Recall that the first round of funding lasted only two weeks.