“The second round of PPP loans will definitely help some of my clients, especially those in the hospitality and event planning industries,” she added.
Businesses, some nonprofit organizations, self-employed workers and independent contractors are among those eligible for the loans. Existing PPP borrowers may apply for a second loan, as long as they have 300 or fewer employees and can demonstrate that in a quarter of 2020 they experienced a 25% reduction in gross receipts from the same quarter in 2019.
The new legislation allocates around $284 billion to new PPP borrowing and refers to the new loans as second-draw loans. The loan limit is $2 million, and the amount a small business will qualify for is determined by taking its average monthly payroll in 2019 and multiplying it by 2.5. In other words, the second round of PPP loans is meant to fund 2.5 months of payroll expenses.
The bill has a special calculation for restaurants and food businesses and provides them with a larger loan amount of 3.5 months of average monthly payroll. So, for example, if you had an average monthly payroll in 2019 of $100,000, then your small business would qualify for $250,000. If you were a restaurant or other qualifying food business, you would qualify for $350,000.
To qualify for a second draw PPP loan, a small business must have 300 employees or fewer, a decrease from the original 500 employee maximum in the first round. And it must have already used or planned to use its original PPP funding. As they could under the original PPP loan program, small businesses can use the loan proceeds over a period of 24 weeks and can use the funds for payroll, rent and mortgage expenses. The bill also adds some new items to the list of qualifying expenses: operating expenses, workplace expenses on items that protect employees from Covid-19 and covered property damage.
To qualify for a second-draw loan, a small business must certify that it has suffered a revenue loss of 25% or greater. That is drastically different from the original qualification rules for PPP, which simply required the small business to state that economic uncertainty made the PPP loan necessary. The second-draw loans are forgivable, but 60% must be spent on payroll costs.