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The new coronavirus stimulus package allows some small businesses to apply for a second loan through the Paycheck Protection Program (PPP). But not everyone is eligible — and loans are smaller than they were before. If your business can’t qualify, it might still be eligible for more funding on its first PPP loan.
The Second Draw loan is a second round of new coronavirus assistance available to small businesses that have been particularly impacted by COVID-19. It effectively works the same as a regular PPP loan, with a few adjustments. Here’s how it breaks down:
Second Draw loan requirements are tighter than the first round of PPP funding. First, your business must have received a PPP loan and fully spend the funds before you receive the second draw loan (you don’t need to spend it all before you apply, however). It also must be an eligible type of business and meet stricter size requirements.
The following types of businesses are eligible for another round of PPP funding:
Generally, these are similar to the requirements for a regular PPP loan. But there are some newly-eligible organzations like 501(c)(6) organizations — local chambers of congress — and news broadcasters registered with the FCC. But, political organizations, advocacy groups and lobbying groups still wouldn’t qualify. Businesses with ties to China or Hong Kong might also have trouble qualifying, as might any businesses owned by a registered foreign agents.
To qualify, your business must also meet the following criteria:
there are some exceptions to the size requirements. For example, 501(c)(6) organizations can only qualify as long as they have no more than 150 employees. Business with more than one location in the accommodation and food services industry or broadcast news can also qualify for a Second Draw loan as long as they have no more than 300 employees per location
If your business saw a drop of 25% or more in gross sales during a quarter before and after the pandemic, you meet this requirement for a Second Draw loan.
Second Draw loans are available from January 13, 2021 to March 31, 2021. As of January 19, 2021, the SBA has started accepting applications from all lenders. The easiest way to get a loan is to go through your current lender. But you can also apply through a new PPP loan provider if you weren’t happy with your first experience.
The maximum you can borrow through the Second Draw program is $2 million — businesses could get up to $10 million the first time around. Like with the original PPP, how much your business is eligible for depends on your payroll costs. The proposed loan program uses the same calculation, too: 2.5 times your average monthly payroll costs in 2019, 2020 or over the past 12 months.
Seasonal businesses will be able to calculate their maximum loan cost by multiplying the average monthly payroll costs during one of the two following periods by 2.5:
If your business was established after 2019, the Second Draw program uses a slightly different formula. You can calculate your maximum loan amount by first adding up all of the eligible payroll costs you’ve incurred since you started the business. Then, divide that result by the number of months that those payroll costs covered. Multiply that result by 2.5.
This one’s a little confusing, so it helps to look at an example:
Say your business was established on February 1, 2020, and you applied for a loan on January 1, 2021. You paid a total of $800,000 in eligible payroll expenses during that time.
Since it covered 11 full months, you’d divide that $800,000 by 11 to get $72,727. Multiply that $72,727 by 2.5 and you get your maximum loan amount: $181,818.
You can get more details on what counts as an eligible expense by reading our guide to calculating payroll costs for the PPP.
Food service and accommodations businesses that fall under sector 72 of the North American Industry Classification System (NAICS) have to calculate their maximum loan amount slightly differently. It’s the lesser of the following:
Businesses with more than one location can only receive one loan of up to $2 million. It can’t have more than 300 employees per location. Like with other businesses, the maximum amount you can receive depends on when your business was established.
Applications are similar to the first time around. You can read our guide to apply for a Second Draw loan for step-by-step instructions.
You have to spend at least 60% of the loan on eligible costs to qualify for full forgiveness on the Second Draw loan — just like a PPP loan. Otherwise, you would only qualify for partial forgiveness — or none at all if you splurge it all on ineligible costs, like say, a Lamborghini.
As it stands, the following types of costs would be eligible for forgiveness under the Second Draw loan:
Below is a list of online lenders offering SBA Paycheck Protection Program loans. We recommend applying as soon as possible, since funds are available on a first-come, first-served basis. Get help filling out the application with our guide.
If you don’t qualify for a Second Draw loan but received a PPP loan, your business could still get more funding through this program. The second stimulus bill expanded the types of expenses that are eligible for PPP funding and forgiveness to include the operating expenses, property repairs, supplier costs and worker protection expenses. Contact your lender to learn how and when to apply for more funds.
Photo: Getty Images
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