After months of haggling, lawmakers have finally settled on a second coronavirus relief bill that was signed into law in late December. Notably, that bill includes a second set of direct stimulus payments, boosted unemployment benefits, and a much needed follow-up round of Paycheck Protection Program (PPP) loans for small businesses.
What makes PPP loans so valuable is that they're eligible for 100% forgiveness, provided the bulk of those funds are used to cover qualified payroll expenses. Given the way so many local businesses have been struggling, more PPP funding could spare many establishments from shedding jobs and permanently closing their doors. This especially applies in hard-hit industries, like restaurants and retail.
If you're a small business, here's what you need to know about applying for a second PPP loan.
There are stricter eligibility requirements
The first round of PPP funding was somewhat of a free-for-all. Businesses with up to 500 employees were allowed to apply but only had to certify to the fact that they needed those funds due to economic uncertainty.
This time around, businesses will need to prove that they've been negatively impacted by the pandemic in order to be eligible for a loan. To get a second PPP loan, you must have fewer than 300 employees and your business must have experienced a 25% loss (or more) of revenue in any quarter of 2020. Unfortunately, this won't be a difficult thing for some businesses to prove, but the requirement is there.
Furthermore, during this second round, PPP loans are capped at either $2.5 million or 2.5 times an applicant's monthly payroll costs -- whichever figure is lower. At least 60% of the PPP loan must be used for payroll expenses to qualify for forgiveness. Also, to apply for a second loan, your business must have first exhausted its initial PPP funds.
Applications may be a scramble
When the PPP was first introduced under the CARES Act, the application process was chaotic. Numerous banks were overloaded with customer inquiries and application systems crashed left and right. Worse yet, many small businesses were closed out of the initial round of PPP funding simply because they weren't able to apply for aid early on in the process.
If you're planning to apply for a second PPP loan (as of this writing, we don't know when applications will first be accepted), now's the time to get your paperwork in order, especially given the new eligibility requirements. Gather tax returns, profit and loss statements, and any other documents you might need to complete the application process. And if you need to enlist the help of an accountant to apply for your loan, line one up immediately -- before the crunch.
Also, as you gear up to apply for a second loan, don't assume your only option is your initial lender. Large banks were notably overwhelmed during the first go-round, so you may be better off applying through a smaller bank.
Get the aid you need
Countless small businesses are teetering on the edge of insolvency, thanks to the ongoing pandemic. Remember, whereas large corporations can issue stock to raise capital, local operations have limited options when money becomes tight.
If your business needs a financial lifeline, gear up to file for a second PPP loan if you meet the aforementioned requirements. It may be a stressful process, especially if it mimics the first round, but if it gets your business the cash it needs to hang on, it's worth it.