The Paycheck Protection Program (PPP): What’s New, What’s Different, And What Your Small Business Can Do To Obtain A Loan

What is the Paycheck Protection Program (PPP)?

In March 2020, Congress created the Paycheck Protection Program (PPP) via the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The primary purpose of the PPP was to help small businesses, self-employed workers, sole proprietors, qualifying nonprofit organizations, and tribal enterprises stay in business — and fully staffed — despite a precipitous drop in economic activity.

The initial PPP appropriation was $349 billion, an amount that was expected to last until June 2020. But, when those initial funds ran out in mid-April, Congress appropriated an additional $320 billion for the program. That appropriation lasted until early August 2020, after which no new PPP loan applications were accepted.

According to outgoing Treasury Secretary Steven Mnuchin, “the PPP provided 5.2 million loans totaling $525 billion to America’s small businesses, supporting more than 51 million jobs” last year. But the popularity of the program, a sharp rise in COVID-19 cases, and the persistence of the nation’s economic problems prompted Congress to include $900 billion in COVID-19 relief in December 2020’s Consolidated Appropriations Act.

In a provision of the Consolidated Appropriations Act called the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, Congress set aside $284 billion of that $900 billion for another round of PPP funding. Once again, the Small Business Administration (SBA) was given authority over the program.

Which businesses are eligible for Round 2 PPP loans?

Any qualifying small business can secure a loan under the new PPP guidelines. That includes qualifying small businesses that did not obtain funding in 2020 (or during Round 1) as well as businesses that did.

Many of the original rules apply to those seeking to obtain a PPP loan for the first time. A company or nonprofit organization must, with some exceptions, employ fewer than 500 workers. Applicants must also certify that “current economic uncertainty makes this loan request necessary” to support their continuing operations. Finally, applicants must have been in operation on February 15, 2020, to qualify.

Even more organizations are eligible for PPP funding under these new rules, including nonprofits, housing cooperatives, newspapers, broadcasters, and local chambers of commerce. So too are self-employed business owners, including independent contractors. All sole proprietorships must have shown a profit on their 2019 or 2020 tax return to qualify.

How soon can I apply for a Round 2 PPP loan?

After giving a head start to smaller lenders — such as Community Development Financial Institutions, Minority Depository Institutions, Certified Development Companies, and micro-loan intermediaries — the SBA opened the PPP application process to all lenders on January 19, 2021.

How long do I have to apply for a Round 2 PPP loan?

The SBA will accept PPP applications until March 31, 2021, or until all $284 billion has been lent to small businesses, whichever occurs first.

I did not receive a PPP loan in 2020. What do I need to know about applying in 2021?

New, or first-draw, PPP borrowers may apply for a loan totaling no more than 2.5 times your average monthly payroll costs for the calendar year 2019, 2020, or the precise one-year period before the granting of your first-draw PPP loan. However, your total loan amount cannot exceed $10 million.

To qualify for a first-draw loan, you must certify that you are one of the following.

• A small business with 500 or fewer employees (with some exceptions, as noted above), otherwise eligible for other SBA 7(a) loans.
• A business officially categorized as providing “Accommodations or Food Services,” such as a restaurant or hotel, that employs 500 or fewer individuals per location.
• A nonprofit 501(c)(3) organization, a 501(c)(19) tax-exempt veterans organization, or a tribal enterprise with 500 or fewer employees.
• A self-employed worker, independent contractor, gig worker, or sole proprietor.
• A housing cooperative, an eligible section 501(c)(6) organization, or an eligible destination marketing organization with no more than 300 employees.
• A news organization that is majority-owned or -controlled by a NAICS code 511110 or 5151 business or nonprofit public broadcasting entity, or that owns or operates a trade or business under NAICS code 511110 or 5151 and has no more than 500 employees.

Also, as stated above, your business or organization must have been in operation on February 15, 2020, to qualify for a first-draw PPP loan.

I received a PPP loan in 2020. What do I need to know about applying again in 2021?

If you applied for and received a PPP loan in 2020, you are what is known as a second-draw borrower. Second-draw loans have different requirements than first-draw loans. Specifically, larger businesses are not eligible for second-draw loans. Second-draw borrowers must employ no more than 300 workers.

Assuming you meet this requirement, you can apply for a second-draw loan totaling no more than 2.5 times your average monthly payroll costs for the calendar year 2019, 2020, or the precise one-year period before you received your loan. However, restaurants and hotels can receive up to 3.5 times their average monthly payroll costs. In either case, your total second-draw loan amount cannot exceed $2 million.

To qualify for a second-draw loan, you must furnish proof that:

• You received a Round 1 PPP loan and used the funds — or plan to use them — before receiving disbursements from your second-draw loan.
• You have or will spend the full amount of your first-draw loan on eligible expenses, such as payroll and rent.
• Your business’s revenue declined by 25 percent or more in 2020 (compared to 2019).

I returned all or part of my Round 1 PPP loan. Can I still apply for a second-draw PPP loan?

Yes, if you returned all or part of a Round 1 PPP loan, you may still reapply for a PPP loan under the provisions of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.

What other paperwork should I have prepared to apply for a Round 2 PPP loan?

Whether you’re applying for a first-draw or a second-draw loan, you’ll need to submit the following documents with your applications.

• Your federal income tax returns (or tax return transcripts) for 2019 and/or 2020.
• Your payroll and employee benefits records.
• Documentation verifying your company’s legal status (incorporation) and structure.
• Some demonstration that COVID-19 has negatively affected your business.

Please consult the PPP application instructions for a complete list of required attachments.

How long will it take to get my Round 2 PPP loan?

In Round 1, the SBA approved applications almost instantaneously, allowing some loans to be disbursed within hours after the borrower applied. For this Round 2, the SBA has implemented more rigorous fraud-checking protocols. Moreover, many lenders have intensified their vetting of applicants.

Consequently, you can expect either a first-draw or second-draw PPP application to take at least a few days to be processed.

PPP loans from Guaranty Bank & Trust

Last year, Guaranty Bank & Trust helped small businesses all across the Lone Star State obtain PPP loans. Our friendly, compassionate, and collaborative community bankers are ready to put their expertise to work for your business again in 2021.