What are approved uses for second draw PPP loans? (how to maintain forgiveness)

In this 4-minute read:

  • How to spend your second draw PPP loan
  • What are approved expenses for the second draw PPP loan?
  • What qualifies as payroll costs for second draw PPP loans?

Many businesses now have the opportunity to receive additional funding through the Paycheck Protection program to help their companies and employees during this difficult time as the COVID-19 pandemic continues. 

The Treasury Department and U.S. Small Business Administration (SBA) reopened this program on January 11, 2021 and began accepting applications for the new “second draw” PPP loans on January 13, 2021. And they will continue to accept applications until the current application deadline of March 31, 2021, so get your application in soon! 

Get your PPP loan or second draw PPP loan through Womply! Womply has helped over 200,000 businesses get their PPP funding. It’s free to apply for a PPP loan, and Womply can help connect you with an SBA lender that’s right for you! Start your PPP application.

Eligibility requirements for the second draw PPP loan

In order to apply for a second draw of the PPP loan, your business must meet certain requirements. The “second draw” PPP loan is only available to people who got a PPP loan previously, and:

  • You must have used your PPP loan for only authorized uses, and
  • You must have used ALL of your PPP funding, or certify that you WILL have spent it all by the time your second loan is funded, and
  • You must have have fewer than 300 employees, and
  • You must be able to show at least a 25% reduction in profits in any quarter from 2020 when compared to 2019

If you can show that you meet each of these requirements and certify that you have a need for additional funding, then you should definitely apply for another PPP loan, because it’s vital help for your business, and just like the first draw PPP loan, if you spend your money according to the rules, you can have your loan 100% forgiven! 

What are approved expenses for the second draw PPP loan?

In order to receive loan forgiveness on the PPP loan, you must spend the funds you receive on expenses that the SBA has approved. All approved expenses from the first round of the PPP loans are still eligible expenses (which we’ll go over below), but there are a couple of changes for this new round of the program.

First, you need to know that despite all of the approved costs we’ve outlined, you will need to spend at least 60% of your PPP funds on payroll costs in order to receive loan forgiveness (down from 75% for the first round). 

The approved expenses for second draw PPP loans are:

  • Payroll costs
  • Costs related to health care benefits and paid leave
  • Mortgage interest payments
  • Rent payments
  • Utility payments
  • Payments on interest or other debts incurred before February 15, 2020
  • Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020
  • Operation expenses
    • Including business software or other online services that help with operations, product or service delivery, tracking of payroll expenses, human resources, sales and billing tasks, tracking of supplies and inventory, etc.
  • Property damage costs that occurred due to public disturbances in 2020 and were not covered by insurance
  • Covered supplier costs
  • Covered costs for worker protection
    • This includes costs associated with getting your business up to par with the health requirements deemed by DHHS, the CDC, and OSHA in order to protect employees and customers from COVID-19
      • Costs for purchasing, maintaining, or renovating your space
      • Personal protective equipment costs

Be sure that you can keep track of all your expenses once you receive your disbursement of the PPP loan. Check out this guide: Tracking PPP expenses to maintain forgiveness (tools and tips!) 

Start Your PPP Loan Application

What qualifies as payroll costs for second draw PPP loans?

Since at least 60% of your second draw PPP loan must be used on payroll costs, it’s important to understand what all that entails. You can spend less than 60% of your loan on payroll costs, but you won’t qualify for full loan forgiveness if you do, and you’ll have to pay back a portion of your loan (at 1% interest, within the 5-year repayment period).

For business owners with employees, payroll costs can include the following:

  • Employee compensation
    • Salary, wages, commissions or similar compensation
    • Cash tips or equivalent (based on employer records or a good faith employer estimate)
  • Payment for vacation, parental, medical, or sick leave
  • Severance packages for employees that left
  • Payment for providing employee benefits
    • Group health care or group life, disability, vision, or dental insurance, including premiums
    • Retirement
  • Payment of state and local taxes based on employee compensation

For independent contractors, sole proprietors, and eligible self-employed individuals, payroll costs may include:

  • Wages, commissions, income, or net earnings from self-employment

Learn more with our PPP Payroll FAQ.

Why use Womply to apply for your PPP loan?

As you know, it’s free to apply for a PPP loan, and we know you have lots of choices. So why should you let Womply connect you with an approved SBA lender? Because we know what we’re doing and people love the help we provide. We’ve helped over 200,000 businesses, contractors, sole proprietors, and self-employed individuals get approved. Don’t wait! The deadline is March 31, 2021.

Start your PPP application now!

Learn more, plus get free reputation monitoring and customer insights when you sign up for Womply Free!

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