Do I need to have PPP forgiveness before applying for a second draw loan? (2021 Q&A)

In this 3-minute read:

  • Do you need your first PPP loan forgiven before you apply for a second draw loan?
  • What are the new rules for PPP forgiveness
  • What new expenses are allowed under PPP loans?
  • Can I apply for first and second draw PPP loans at the same time?

For 2021, the Paycheck Protection Program to help support America’s struggling small businesses was been re-funded and renewed with $284 billion, and with a new PPP application form, simpler rules, more businesses eligible for PPP loans, more expenses allowed to achieve full PPP forgiveness, second draw PPP loans allowed for some businesses, and other tasty updates. 

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One of the common questions we hear relating to the PPP program in 2021 is: 

If I received a PPP loan in 2020, does it need to be forgiven before I apply for a Second Draw PPP loan in 2021?

And the answer is no, you don’t need to have received forgiveness or even APPLIED for PPP forgiveness for your first loan in order in order to receive a Second Draw PPP loan. 

YOU DO, however, need to certify that you spent, or will spend your full first draw loan funds on eligible expenses before the date you receive your second draw funds. In other words, the government wants some assurance that you spent your first draw loan responsibly and will be eligible to receive forgiveness on that loan, as well as for your second draw PPP loan in the future. 

Does this mean I can apply for a First Draw loan and a Second Draw loan at the same time?

No. You need the PPP First Draw SBA Loan Number from your First Draw PPP loan in order to apply for a Second Draw PPP loan. However, as soon as your First Draw loan is issued and you have that number, you can immediately apply for a Second Draw loan as long as you meet the eligibility requirements and you can certify that you will have used all of your First Draw loan funds prior to the dispersal date of your Second Draw loan.

How do I find out if I’m eligible for a second draw PPP loan?

In general, requirements for Second Draw PPP Loans are narrower than the eligibility requirements for first draw PPP Loans. 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, 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. 

Basically, if you have less than 300 employees and followed the rules for your first PPP loan (and you can demonstrate a 25% reduction in revenue… more on that here), you are likely eligible for a second draw PPP loan.

For full details of eligibility for second draw PPP loans, including certain exclusions, please refer to our FAQs about second draw PPP loans.

2021 adds additional eligible expenses for forgiveness for first and second draw PPP loans

As we mentioned in the intro, there have been several updates to the original PPP terms over the past months, and the latest round of PPP funding adds more eligible forgivable expenses, to allow small businesses to take more full advantage of this relief package.

The new PPP rules make the following expenses allowable and forgivable Paycheck Protection Program funds, in addition to the previous eligible expenses like payroll, rent, utilities, etc.:

  • Covered operations expenditures: Payment for any software, cloud computing, and other human resources and accounting needs
  • Covered property damage costs: Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance
  • Covered supplier costs: Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan
  • Covered worker protection expenditures: 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 during the period between March 1, 2020, and the end of the national emergency declaration

Will my Second Draw PPP Loan application be affected if there are unresolved issues regarding my First Draw PPP Loan?

Pretty much, yeah. Per the SBA:

(1) If a First Draw PPP Loan is under review pursuant to PPP rules and/or information in SBA’s possession indicates that the borrower may have been ineligible for the First Draw PPP Loan it received or for the loan amount received by the borrower, the lender will receive notification from SBA when the lender submits an application for guaranty of a Second Draw PPP Loan (‘‘unresolved borrower’’).

 (2) If the lender receives notification that the Applicant for a Second Draw PPP Loan is an unresolved borrower, the lender will not receive an SBA loan number. SBA will resolve the issue related to the unresolved borrower expeditiously and will notify the lender of the process to obtain an SBA loan number for the Second Draw PPP Loan, if appropriate.

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