In this 3-minute read:
- Who is eligible for a second PPP loan?
- What are the application requirements for a second draw PPP loan?
- How do I demonstrate a quarterly 25% reduction in revenue if I don’t have accurate quarterly records?
President Biden has signed into law a bill extending the PPP program application window until May 31, 2021, so if you haven’t applied, you need to get on that ASAP. But more importantly for those who have already applied for PPP loans in 2020 and been funded, the 2021 bills allows you to apply for “second draw” PPP loan as long as you meet certain qualifications.
Let’s go over what you need to know if you want to apply for a second draw PPP loan. (For full details, refer to the SBA’s document regarding second draw PPP loans.)
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Who is eligible to apply for a second draw PPP loan?
In general, the Economic Aid Act made the eligibility requirements for Second Draw PPP Loans narrower than the eligibility requirements for first draw PPP Loans. The Economic Aid Act generally provides that you are eligible for a “Second Draw” PPP Loan only if:
- Your business has 300 or fewer employees, and
- Your business experienced a 25% revenue reduction in 2020 relative to 2019 (described further below), and
- Your business has received a “first draw” PPP loan and has used, or will use, the full amount of the initial PPP funding on or before the expected date on which the Second Draw PPP Loan is disbursed to you, and
- You have spent the full amount of your first PPP Loan on eligible expenses under the PPP rules. This clarification will help ensure program integrity by preventing borrowers from receiving a second PPP Loan if they have not complied with PPP loan program requirements
For more details of eligibility for second draw PPP loans, including certain exclusions, see our FAQ guide about eligibility requirements for Second Draw PPP loans.)
What are the terms of the “second draw” PPP loan?
Second Draw PPP Loans are generally subject to the same terms, conditions and requirements as First Draw PPP Loans. These include, but are not limited to the following terms:
- Second Draw PPP loans are guaranteed at 100 percent
- No collateral will be required
- No personal guarantees will be required
- The interest rate will be 100 basis points or one percent, calculated on a noncompounding, non-adjustable basis
- The maturity is five years.
Can I get a second PPP loan if I haven’t used all of the money from my first PPP loan?
You can only get a second draw PPP loan if you have used, or will use, all your initial PPP funding for approved expenses on or before the date the second loan is distributed to you.
I don’t have quarterly revenue data for my small business. How do I demonstrate a 25% reduction in revenue to qualify for a second draw PPP loan?
If you don’t have accurate quarterly revenue data demonstrating a 25% reduction in revenue for one quarter in 2020 compared to 2019, you can use your 2020 tax return to demonstrate the 25% reduction, assuming you reported a 25% or greater loss for 2020.
Specifically, The Economic Aid Act provides that, to be eligible for a Second Draw PPP Loan, the borrower must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019. A borrower must calculate this revenue reduction by comparing the borrower’s quarterly gross receipts for one quarter in 2020 with the borrower’s gross receipts for the corresponding quarter of 2019.
For example, a borrower with gross receipts of $50,000 in the second quarter of 2019 and gross receipts of $30,000 in the second quarter of 2020 has experienced a revenue reduction of 40 percent between the quarters, and is therefore eligible for a Second Draw PPP loan (assuming all other eligibility criteria are met).
IF YOU DON’T HAVE QUARTERLY REVENUE DATA:
The SBA provides that a borrower that was in operation in all four quarters of 2019 is deemed to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25 percent or greater in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline.
This provision will allow a borrower to provide annual tax return forms to substantiate its revenue reduction.
For more details check out our FAQ guide: How to apply for Second Draw PPP Loans.
Do I need to reapply to get a second draw PPP loan?
Yes. The application process is similar to when you applied the first time, but the application form has been simplified. You will need to show evidence that you qualify for a second draw PPP loan based on revenue losses in 2020 compared to 2019, and that you adhere to all eligibility requirements described above and in the SBA’s rules.
An important note: If you are applying for your Second Draw PPP loan through a different lender than the one you got your First Draw loan through, you will need a PPP First Draw SBA Loan Number.
This is a unique 10 digit loan number assigned to your First Draw PPP loan by the lender who facilitated your First Draw loan. You will most likely need to contact your original lender to receive this number.
Is there any fee for applying for a second draw PPP loan?
No. SBA loans are fee-free for the applicant. The fees are paid by the SBA. If your lender tells you that you need to pay an application fee, find a different lender. Consequently, lenders should not be asking you to pay them an application fee.
What’s the maximum amount I can borrow for a second draw PPP loan?
The maximum loan amount for a Second Draw PPP Loan is equal to the lesser of: A. two and half months of the borrower’s average monthly payroll costs; or B. $2 million.
For food services or accommodations businesses in NAICS category 72, your maximum loan calculations may be different based on 2021 updates. Read our FAQs about determining Second Draw PPP Loan Maximum Amounts or read our blog post about the increased max PPP loan amount for second draw loans for NAICS code 72 businesses.
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