The second round of Paycheck Protection Program (PPP) loans is in full swing. So far, it has helped over 60,000 struggling small businesses.
The coronavirus relief bill signed in late December includes a second round of Paycheck Protection Program (PPP) loans. So far, this is already proving to be a lifesaver.
The coronavirus pandemic has hit small businesses, hurt communities and killed jobs. Fortunately, there has been some relief in the form of the Paycheck Protection Program, which first became available in the spring of 2020. Through PPP, small businesses have been eligible for forgivable loans to cover salary costs and other essential expenses. And now there’s a second round of PPP loans to apply for.
Over 60,000 loans and more
The Small Business Administration (SBA) recently announced that it approved over 60,000 PPP loans in the first week since the opening of the second round of funding. From January 11 to 17, some 3,000 lenders provided more than $5 billion in loans.
These loans can be a lifeline for struggling businesses still affected by the pandemic. Restaurants, for example, are forced to operate within strict capacity limits, which kills their revenue. Additional PPP funding could save countless jobs in the first half of 2021, not to mention prevent the closure of thousands of small businesses.
Not every man for himself
Qualifying for a PPP loan in the spring was easier than qualifying now. At the time, the only requirement was for businesses with 500 or fewer employees to certify their need for cash due to economic uncertainty. And really, during the first months of the pandemic, what company could not legitimately claim that? But businesses applying for a second round of PPP financing must meet stricter requirements to receive a follow-on loan.
How to qualify for a second PPP loan
Businesses seeking a second PPP loan must first exhaust the funds from their first loan. From there, applications are open to companies with fewer than 300 employees, and not 500 as in the first round. In addition, general economic uncertainty will not suffice for this monitoring cycle. Businesses must instead prove that they suffered a loss of revenue of 25% or more in any quarter of 2020 to be eligible for a second loan.
From there, second-round PPP loans are capped at $2 million or 2.5 times a company’s payroll costs, whichever is lower. There is an exception for restaurants and hotels, which can apply for loans up to 3.5 times their monthly payroll costs. However, the $2 million borrowing limit still exists.
To be eligible for PPP loan forgiveness, at least 60% of these funds must be used to cover salary expenses. The remaining 40% can be used for other operating costs, such as rent and utilities.
Companies can also apply for the first time
Any small business that has not received an initial PPP loan by August 8, 2020 can apply for a loan in this second round of funding. New borrowers are eligible if they have 500 or fewer workers; they can receive a loan of up to 2.5 times their monthly salary costs, up to a total of $10 million.
How to apply for a second PPP loan
Companies looking for a second PPP loan should start with the banks they used to guarantee their initial loans. In the meantime, companies applying now for the first time should start by contacting banks with which they already have a relationship. Community banks can also be a good resource for securing PPP financing. In fact, a number of local institutions have already helped make PPP funds accessible to underserved communities.
Help is available
Given the scale of the pandemic, the emergence of COVID-19 variants, and vaccine rollouts, chances are the U.S. economy won’t recover for some time, and small businesses could bear the weight. Those who are eligible for a second PPP loan should not hesitate to seek one out, as this money could be the difference between staying afloat and closing for good.