A COVID financial relief program which helps small businesses continue to pay workers resumed offering loans this week, the Small Business Administration (SBA) announced.
The Paycheck Protection Program (PPP) was reopened to businesses that did not receive a first round forgivable PPP loan on Monday. The program expanded to accept applications from certain businesses that did receive funding during the first round (so-called “Second Draw” businesses) on Wednesday.
First Draw PPP loans may be used to fund payroll costs, including benefits. However, the SBA announced that the funds can also be put toward other business expenses, including mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.
The SBA will even forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses.
Terms of First Draw PPP loans include:
- PPP loans have an interest rate of 1 percent.
- Loans issued prior to June 5, 2020 have a maturity of two years. Loans issued after June 5, 2020 have a maturity of five years.
- Loan payments will be deferred for borrowers who apply for loan forgiveness until the SBA remits the borrower’s loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either eight or 24 weeks).
- No collateral or personal guarantees are required.
- Neither the government nor lenders will charge small businesses any fees.
Business entities that may be eligible for First Draw PPP loans include:
- Sole proprietors, independent contractors and self-employed individuals
- Any small business concern that meets SBA’s size standards (either the industry size standard or the alternative size standard)
- Any 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 the greater of:
- 500 employees, or
- That meets the SBA industry size standard if more than 500
- Any business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 5000 per location
The SBA is accepting applications for First Draw PPP loans until March 31, 2021.
Businesses that previously received a First Draw PPP loan may now apply for Second Draw PPP loans, the SBA also announced this week.
A borrower may be eligible for a Second Draw PPP Loan if they:
- Previously received a First Draw PPP Loan and will or have used the full amount only for authorized uses
- Have no more than 300 employees; and
- Can demonstrate at least a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020
The SBA has made some alterations to the second iteration of the program to promote access for smaller lenders and their customers.
“SBA will initially only accept Second Draw PPP Loan applications from participating community financial institutions, which include Community Development Financial Institutions, Minority Depository Institutions, Certified Development Companies and Microloan Intermediaries,” they announced.
The program will reopen to all participating lenders “shortly thereafter,” the SBA announced.
The program also targets the smallest businesses, as well as those in less fortunate areas.
“At least $25 billion is being set aside for Second Draw PPP Loans to eligible borrowers with a maximum of 10 employees, or for loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods,” the administration announced.
The SBA website has more information about PPP loans as well an application available for download.
Those interested in a Paycheck Protection Program loan can use the administration’s lender match tool to get started by being matched with a participating lender.