What you need to know about the PPP Second Draw Loans Program
Updated: Jan 20
Section 11 of H.R. 133 creates a second loan from the Paycheck Protection Program (PPP) called a “PPP second draw” loan for smaller and harder-hit businesses, with a maximum amount of $2 million. The program is now open to all participating lenders for first and second Draw loan applications.
First Draw PPP loans are for those borrowers who have not received a PPP loan before August 8, 2020. Second Draw PPP loans are for eligible small businesses that previously received a First Draw PPP loan and will use or have used the full amount only for authorized uses.
Below is a guide to understanding the provisions in the act related to the PPP second draw program. Visit www.sba.gov/paycheckprotection for more information about the PPP.
A borrower is generally eligible for a Second Draw PPP loan if the borrower:
Had no more than 300 employees;
Previously received a First Draw PPP loan and wll or has used the full amount for authorized uses; and
Demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. Click here for a guide on how to calculate revenue reduction.
Eligible entities must be businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.
In general, borrowers may receive a loan amount of up to 2.5X the average monthly payroll costs in the one year prior to the loan or the calendar year. No loan can be greater than $2 million.
New entities may receive loans of up to 2.5X of average monthly payroll costs.
Entities in industries assigned to NAICS code 72 (Accommodation and Food Services) may receive loans of up to 3.5X average monthly payroll costs.
PPP loans have an interest rate of 1%.
Loans issued after June 5, 2020 have a maturity of five years.
No collateral or personal guarantees are required.
Neither the government nor lenders will charge small businesses any fees.
Second Draw PPP loans made to eligible borrowers qualify for full loan forgiveness if during the 8 to 24 week covered period following a loan disbursement:
Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan
The loan proceeds are spent on payroll costs and other eligible expenses; and
At least 60% of the proceeds are spent on payroll costs.
A borrower can apply for forgiveness once all loan proceeds for which the borrower is requesting forgiveness have been used. Borrowers can apply for forgiveness any time up to the maturity date of the loan. Loan payments will be deferred for borrowers who apply for loan forgiveness until 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 8 weeks or 24 weeks).
Additional Eligible Expenses
The following expenses are now eligible and forgivable uses for PPP funds:
Covered operations expenditures: Software, cloud computing, and other human resources and accounting needs
Covered property damage costs: Property damage due to public disturbances that occurred during 2020 that are not covered by insurance
Covered supplier costs: Contracts, purchase orders, or orders for goods in effect prior to taking out the loan that are essential to the recipient’s operations
Covered worker protection expenditure: Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and Local guidance related to COVID-19
Timeline and Appropriations
The act extends of time of the program to March 31, 2021 and allocated $284.45 billion for PPP, including the below set-asides. After 25 days, the SBA Administrator may adjust the set-asides as necessary.
$15 billion for PPP loans (initial and second draw) issued by community financial institutions, including community development financial institutions (CDFIs) and minority depository intuitions (MDIs);
$15 billion for PPP loans (initial and second draw) issued by certain small depository institutions.
$35 billion for first-time borrowers, $15 billion of which for smaller, first-time borrowers with 10 or fewer employees, or loans less than $250,000 in low-income areas;
$25 billion for second draw PPP loans for smaller borrowers with 10 or fewer employees, or loans less than $250,000 in low-income areas.
$25 million for the Minority Business Development Centers program under the Minority Business Development Agency (MBDA);
$50 million for PPP auditing and fraud mitigation purposes;
$20 billion for the Targeted EIDL Advance program, of which $20 million for the Inspector General;
$57 million for the Microloan program as described in section 29;
$1.9 billion to carry out sections 26, 27, and 28;
$3.5 billion for the Debt Relief program as described in section 25;
$15 billion for grants for live venues as described in section 24.
GCP will work to update this guide to ensure you have the information needed. Check back here for updates.
To review full guidance released by the SBA, see here: