Small businesses continue to experience hardships related to the COVID-19 pandemic. As a result, more loans recently became available to small businesses as Paycheck Protection Program (PPP) loans.
While there’s another opportunity to apply for and receive COVID-19-related funds, there are some things that you should know. Here’s how to get started with COVID-19 small business-related relief funds.
PPP Loan Options and Qualifications
As of January 2021, PPP loans are available for small businesses. There are two loans available for small business owners, each with different requirements:
- First Draw PPP Loans
- Second Draw PPP Loans
There are broad requirements for the First Draw PPP Loan. To qualify for a First Draw PPP Loan, your small business can be:
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or tribal business with the greater of:
- 500 employes
- That meets the SBA industry size 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 500 per location
- Any small business that meets SBA’s size standards (either the industry size standard or the alternative size standard)
Independent contractors, self-employed people, and sole proprietors may also qualify for a First Draw PPP Loan.
You can apply for a Second Draw PPP Loan if you:
- Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020
- Have no more than 300 employees
- Previously received a First Draw PPP Loan and will or have used the full amount only for authorized uses
Where To Apply for PPP Loans
If you’re interested in a First Draw or Second Draw PPP Loan, you can apply through the Small Business Administration. The SBA has worked with several lenders, including community banks, credit unions, and farm credit institutions.
You may also consider applying to these institutions for PPP Loans:
- Certified Development Companies (CDCs)
- Community Development Financial Institutions (CDFIs)
- Microloan Intermediaries
- Minority Depository Institutions (MDIs)
PPP Loans and Loan Limits
If you receive the First Draw PPP Loan, you can use it for:
- Funding payroll costs (including benefits)
- Paying for:
- COVID-19-related worker protection costs
- Mortgage interest
- Rent
- Utilities
- Uninsured property damage costs caused by looting or vandalism during 2020
You can also use First Draw PPP Loan money for certain operating expenses and supplier costs.
Borrowers can receive up to $10 million, depending on their business entity and other factors. Borrowers who are part of the same corporate group have a higher limit of $20 million.
However, the Small Business Administration considers businesses to be part of a single corporate group if:
- A parent group owns a majority of the group, directly or indirectly.
If you receive the Second Draw PPP Loan, you can use it for:
- Funding payroll costs (including benefits)
- Paying for:
- COVID-19-related worker protection costs
- Mortgage interest
- Rent
- Utilities
- Uninsured property damage costs caused by looting or vandalism during 2020
There’s a loan limit for borrowers seeking a Second Draw PPP Loan. This limit is 2.5 times the average monthly 2019 or 2020 payroll costs, up to $2,000,000.
For prospective borrowers in the accommodations and food services industries, whose industries are listed in NAICS 72, the limit increases to 3.5 times the average monthly 2019 or 2020 payroll costs, up to $2,000,000.
PPP Loans Forgiveness
For both First Draw PPP Loans and Second Draw PPP Loans, loan forgiveness remains an option. The terms for loan forgiveness are relatively similar.
First Draw PPP Loans are eligible for borrowers if, during 8 to 24 weeks following loan disbursement, you:
- Maintain employee and their compensation levels
- Spend at least 60% of proceeds on payroll costs
- Spend loan proceeds on payroll costs and other eligible expenses
Second Draw PPP Loans are eligible for borrowers if, during 8 to 24 weeks following loan disbursement, you:
- Maintain employee and their compensation levels as required for the First Draw PPP Loan
- Spend at least 60% of proceeds on payroll costs
- Spend loan proceeds on payroll costs and other eligible expenses
Application Deadlines
If you apply for either the First Draw PPP Loan or Second Draw PPP Loan, it’s important to know the deadlines:
- You can apply for a First Draw PPP Loan until March 31, 2021.
- All First Draw PPP Loans will have the same terms no matter how you receive the loan.
- You can apply for a Second Draw PPP Loan from January 13, 2021, to March 31, 2021.
- All Second Draw PPP Loans will have the same terms no matter how you receive the loan.
Work With the Professionals
It is important to get the small business loan assistance that you need during the COVID-19 pandemic. Work with accounting experts to ensure your business gets the help it needs.
