PPP Second Draw: Eligibility & How to Apply in February 2021

Last year, the Paycheck Protection Program (PPP) provided forgivable loans to more than 5.2 million businesses. Loan averages hovered around $107,000, with 87% of the loans going for less than $150,000. These loans provided a lifeline to small businesses and employees across the country impacted by the COVID-19 pandemic.

However, the global pandemic has lasted longer than initially predicted, and businesses are still fighting to adapt to the New Normal. To keep US small businesses afloat, the government has approved the second round of funding to provide additional PPP loans.

These new-and-improved government-backed loans are available for first-time PPP borrowers and those taking a second-draw PPP loan. Not much has changed with PPP 2.0 loans, but the subtle nuances can make a big difference in your eligibility and application process.

If you already secured a PPP loan last year and are looking for a second draw, we’ll help you navigate the process below.

PPP Second Draw Eligibility: Who Qualifies?

Second-draw PPP loans have slightly different eligibility requirements than first-draw loans. If you’re applying for a second PPP loan in 2021, you’ll need to satisfy the following criteria:

• You must have used up your first PPP loan (or have plans to use the full amount before disbursement of the second loan)
• Your business must have been operational before February 15, 2020
• Your business must still be open now
• You need to have 300 or fewer employees (if you have multiple locations, each location can have no more than 300 employees)
• You must be able to prove a 25% or greater loss in gross revenue

You have two different ways you can show a 25% or greater reduction in revenue:

1. Tax Returns: Compare the annual gross receipts you reported on your tax returns for 2020 and 2019.
2. Quarterly Receipts: Compare your gross income in any quarter in 2020 with the gross income in the same quarter in 2019.

What PPP Loan Amount Do You Qualify for?

Second-draw PPP loan amounts are calculated similarly to the original PPP loans. You’re eligible for a PPP loan equal to 2.5 times your average monthly payroll costs.

Maximum loan amounts have been crunched from $10 million to $2 million for second-time loan borrowers. 

Businesses in special industries (like food, travel, and hospitality) are eligible for loan amounts equal to 3.5 times their average monthly payroll costs.

Expanded PPP Eligible Expenses

This time around, the PPP has included additional eligible expenses. The first rollout included payroll costs, utility expenses, and rent, but the 2021 PPP loans include:

• Operations expenditures: Software, cloud computing, human resources, or accounting-related expenses.
• Supplier costs: Essential contracts and purchase orders necessary to keep your business going.
• Property damage costs: Costs related to property damage incurred by public disturbances in 2020 that aren’t covered by your insurance.
• Worker protection expenditures: Expenses for investments in personal protective equipment and other expenses that help your business comply with federal or state health and safety guidelines.

PPP Second Draw Forgiveness: Criteria

To be eligible for complete loan forgiveness, you’ll need to make sure you use your PPP loan appropriately. There are 4 main factors to consider:

1. 8 to 24-Week Coverage Period
2. The 60/40 Rule
3. Staffing Requirements
4. Salary Requirements

Follow our PPP loan checklist to help keep you on track for loan forgiveness.

8 to 24-Week Coverage Period

All eligible expenses must be incurred over the 8 to 24-week coverage period. This period begins on the day you receive your first PPP loan disbursement from your lender.

The 60/40 Rule

You must spend at least 60% of your loan on payroll costs. The remaining 40% can be spent on other PPP loan eligible expenses. If you spend less than 60% of your loan on payroll costs, your forgivable amount will be reduced proportionally. 

Staffing Requirements

You need to maintain the same number of employees on your payroll. If you let employees go due to economic factors, you’ll need to rehire or replace them before applying for forgiveness.

Salary Requirements

You need to maintain at least 75% of your employee’s total salary. This is calculated on an employee-by-employee basis, so you’ll need to make sure each employee is restored wages and hours before applying for forgiveness.

Second Draw PPP Loan Application: How to Apply

First-draw and second-draw PPP loans are available through Funding Circle. Whether you’re a new or returning customer, we have a quick-and-easy loan application process:

1. If you’re an existing Funding Circle PPP recipient, sign in to your account for a streamlined application. If you’re a first-time Funding Circle PPP applicant, then start your 8-minute application here.
2. A dedicated Account Manager will reach out to you soon through email to help review your application, complete your file, and answer any questions.
3. We’ll get to work determining how much PPP funding you qualify for.
4. Once approved, you’ll start receiving money in your bank account in no time!

Second Draw PPP Loan Forgiveness: How to Apply

Once you’ve secured your PPP loan and use the funds appropriately, it’s time to apply for forgiveness. You’ll apply for forgiveness with your lender—not the SBA. Your lender will likely have sent you reminders, details, and instructions for how to start your application, but here’s a bit of universal guidance:

• Application Deadline: You can apply for loan forgiveness as soon as your “covered period” ends. However, you’ll need to apply for forgiveness within 10 months of the end of the covered period. If you don’t, you’ll have to start making payments on your loan.
• Payroll Costs: 60% or more of your loan must be spent on payroll costs to be eligible for forgiveness. Payroll costs include compensations (salary, wages, tips, etc.), paid leave, employee benefits premiums, and payroll taxes.
• Partial Forgiveness: If your expenses fall outside the covered period or your non-payroll costs exceed 40%, you’re still eligible for forgiveness—it’s just partial forgiveness for the funds that were used appropriately.

You have until March 31, 2021, to apply for a second-draw PPP loan, so don’t wait to start your application. Funding Circle’s PPP funds are limited, so we’re disbursing PPP loans on a first-come, first-serve basis. Start your application now.

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