The CRRSAA created the opportunity for businesses and nonprofits to apply for a second PPP loan if they meet certain criteria. The second-draw loans are more targeted than first-time PPP loans, and to qualify, businesses must 1) have previously received a PPP loan and used the full amount only for authorized uses; 2) have fewer than 300 employees; and 3) have had a 25% reduction in gross receipts during at least one quarter of 2020 versus the same quarter of 2019. The maximum loan size for a second PPP loan is $2 million versus $10 million for a first-time PPP loan. Additionally, the SBA has created a hub on second-draw PPP loans that may be useful.
How do I calculate the maximum amount for my PPP loan?
For first-time PPP loans, businesses and nonprofits generally can request a maximum loan amount of 2.5 times the average monthly 2019 payroll. Insurance payments can also be included in payroll costs. The SBA has also created an explainer for first-time PPP loans that outlines calculations for different types of businesses.
For second-draw PPP loans, the maximum loan amount is calculated as 2.5 times average monthly 2019 or 2020 payroll costs for a maximum of $2 million. For borrowers in the accommodation and food sectors, they may qualify to use a higher calculation of 3.5 times average monthly 2019 or 2020 payroll costs, but the maximum amount remains at $2 million. Work with an accountant or financial advisor to make sure you calculate the loan amount correctly.
Notably, in , the SBA changed the maximum loan size sole proprietors and independent contractors can apply for, basing it on gross income instead of net income. This means if you are self-employed or run a business solo, you should use the new formula if applying for a new PPP loan. If you have a loan already, you should check with your lender to see exactly how much your PPP loan is for and if you can increase the size of it to match the new formula.
What are the loan terms?
The interest rate for all PPP loans is set at 1%. PPP loans that were issued before , mature in two years. Loans issued after , have a maturity of five years. The maximum loan size for a first-time PPP loan is $10 million, and the maximum loan size for a second-draw loan is $2 million. No personal guarantee or collateral is required. Also, both the government and lenders involved with PPP are not allowed to charge small businesses any fees for processing these loans.
Do I qualify for a first or second PPP loan?
For first-time PPP loans, the majority of small businesses with fewer than 500 employees and select types of businesses with fewer than 1,500 employees are able to apply if they experienced revenue . Many 501(c)(3) non-profits, 501(c)(19) veteran organizations, tribal business concerns and self-employed workers/sole proprietors are eligible to apply. As of , 501(c)(6) nonprofits, local news media companies and housing cooperatives were added to the list of organizations that could apply. All publicly traded companies are prohibited from receiving PPP loans.
Businesses can apply for a PPP loan as long as they were operational on , and had paid employees at that time (even if the owner is the only employee). The SBA’s 500-employee threshold includes all types of employees: https://paydayloansohio.net/cities/hillsboro/ full-time, part-time and any other status.
Lenders will also ask for a “good faith certification” that 1) the uncertain economic conditions make the loan request necessary to support operations, and 2) the borrower will use the loan proceeds for specific purposes like payroll and approved expenses.
