What to expect from the second round of Paycheck Protection Program funding

At the time of this writing, the U.S. Small Business Administration in coordination with the U.S. Treasury Department was embarking on the reopened (and revamped) Paycheck Protection Program (PPP). Small lenders with no more than $1 billion in assets got first dibs, as the application portal was opened to these lending partners January 15. Lenders of all sizes can access the portal starting Tuesday, January 19. Applications are currently being accepted until March 31.


History


As part of the Coronavirus Aid, Relief and Economic Security Act (CARES) enacted March 29, 2020, PPP was established to provide forgivable loans to help small businesses, the self-employed, and nonprofits affected by COVID-19 and the recession to cover payroll and other expenses. The loans are administered by financial institutions. In June, the Paycheck Protection Program Flexibility Act (PPPFA) authorized several modifications, including extending the time to use the funds (from eight to 24 weeks), reducing the amount of funds required to be used on payroll (from 75% to 60%) and increasing exemptions for reduced head counts (related to loan forgiveness requirements).


The deadline to apply for the first round of funding was extended from end of June to August 8. The SBA not only opened the second round of funding early to small, community-based lenders, but they have also granted dedicated PPP access to Community Financial Institutions, including Microloan Intermediaries, to reach underserved and minority small enterprises.


Impact


Via SBA data through August, PPP has spanned around 5.2 million loans valued at approximately $525 billion. More than 5,400 lenders participated. The average loan was valued at around $100,000. Reportedly, more than $130 billion in allocated funds were “unclaimed.” In the January 13 announcement (re: “SBA Re-Opening Paycheck Protection Program …”), the SBA called the first round a “historic success,” which reportedly helped 5.2 million small business keep 51 million employees. These jobs, reportedly, account for upwards of 80% of the country’s small business payroll.


First Draw PPP loans


Readers will need to apply for first draw PPP loans if they haven’t received a PPP loan before August 8, 2020. A glimpse into these loans:

  • First-time borrowers may use loans to pay employees (and their benefits), mortgage interest, rent, utilities, “worker protection” costs, eligible supplier costs, and even uninsured property damage.

  • Loans are forgivable if the SBA deems that employee retention and other criteria are met and as long as the funds are used for eligible expenses.

  • The loans themselves are low-interest (1%).

  • Payments are deferred for those who apply for forgiveness, and until the SBA remits the forgiven amount to the participating lender.

  • No collateral, no personal guarantees, no fees required.


Second Draw PPP loans


This category may apply to you if you’ve received a previous PPP loan and are an “eligible borrower.” More insight into these loans:

  • The same general terms remain unchanged from the “first-draw” loan.

  • A borrower may reapply if they have used or anticipate depleting the full amount of the loan.

  • Borrowers must demonstrate that the first-draw loan was used for authorized purposes.

  • Borrowers should have no more than 300 employees.

  • Qualified recipients must demonstrate at least a 25% reduction in gross receipts (year-on-year, between comparable quarters).

  • Maximum loan amount: $2 million.


A beefed-up program?


To piggyback off of its outreach to “underserved” populations, the SBA reported that the second round is now accessible to 5,000 more lenders than the first round. These lenders include credit unions, farm credit institutions and community banks. The agency is also providing for “dedicated service hours” for smaller lenders once the portal is fully reopened.


Additionally, the SBA in a write-up about “loan details” for second-draw loans, highlighted how there is increased assistance for eligible businesses in food service and accommodation. While, for most, borrowers can take out a maximum loan of up to $2 million (2.5 times the average monthly 2019 or 2020 payroll costs) the maximum amount for those in food service and accommodation is 3.5 times the average payroll costs (up to $2 million).


PPP, demystified


The program was not without its controversies and, certainly, confusion especially related to forgiveness-related processes that seemed to unfold in real time. To take on some of the concerns that arose during the first round head-on, the SBA noted in its “Myth Vs. Fact” sheet that:

  • To ensure all rules are followed, all loans go through an automated review.

  • Loans of at least $2 million will be reviewed manually.

  • Any loan can be pulled out and isolated for manual review.

  • To ensure PPP funds are used as intended (not fraudulently), the SBA has a process in place that, partly, involves holding the bad actor accountable (side note: the feds are targeting companies nationwide for PPP loan fraud, with parties subject to civil or criminal penalties including fines and jailtime).

  • Seventy-five percent of the businesses that received funding this first go-around employed fewer than 10 people. Nine out of 10 loans were reportedly for $150K or less.


For more information on the latest with this program, including lender forms, we encourage you to visit the SBA’s hub for all things PPP. Our firm has also welcomed questions about the program since its beginning. We look forward to answering any questions that you may have about applying or re-applying (second draw), or addressing any concerns you may have regarding the process of getting the loan forgiven.


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