While the latest $284 billion Paycheck Protection Program (PPP) is just one part of the $900 billion economic relief package, for some business owners, it’s everything.
The second stimulus package, passed by Congress in December, includes a larger, more inclusive second round of PPP loans that could impact the nearly half of Americans currently employed by a small business.
Among the key changes this round are the size and types of businesses that are eligible to participate. Per Cashin White, director of growth and innovation at BOK Financial, “The rules have been revamped this round to allow companies who didn’t participate in the program previously to apply to receive their first loan. For example, nonprofit 501(c)6 organizations, like chambers of commerce, are now eligible in certain circumstances.”
White said eligibility was also extended for accommodation and food service industries, who may apply for a larger PPP loan this time around, as long as they are classified with NAICS code beginning with 72.
“A client in the restaurant industry was sharing his experience with me, and he got teary while talking about how relieved he was that this was available,” said Amanda Barrett, senior consumer product manager for BOK Financial.
“The opportunity to apply for a PPP loan likely means he will get to keep his family business open. It was passed down from his father. This is more than just economic stimulus; it’s family legacy and saving community landmarks.”
Proof of eligibility
Another key change for round two, White said, is a requirement of proof of eligibility.
“If you want a second draw, you have to demonstrate a 25% reduction in revenue in comparing 2020 to 2019,” he said. “This is a big change because there was no revenue test last year. Applicants have to compare the same quarter, so Q1 2020 to Q1 2019, or you can compare the entire year of 2019 to the entire 2020.”
Applicants applying for a second draw must also show they used their first PPP loans appropriately, White said. However, there is no requirement that the previous PPP loan be forgiven, as the majority of PPP loan recipients have not received loan forgiveness yet, he added.
At least 60% of the loan proceeds must be used on eligible payroll costs, White said. But another change allows businesses to seek coverage for additional costs incurred during the pandemic, such as cloud-based services, worker-protection costs, supplier costs and property damage caused by social unrest.
Loan amounts are calculated the same way, White said. “It’s 2.5 times the average eligible monthly payroll costs based on 2020 or 2019 payroll and 3.5 times for businesses in accommodation or food services.”
The loan max is $10 million for the first draw and $2 million for the second draw. For both first and second draws, the loan comes at a 1% interest rate on a five-year term.
“I think the biggest lesson we’ve learned—because we’re not dealing with the anxiety of whether or not the program will run out of money—is to take your time and do the application process right,” White said. “It was insanity last time. The rules are straight forward. Take your time, fill it out correctly and determine your eligibility correctly.”
White offered these tips for business owners considering making an application for a PPP loan, either the first or second draw:
- Information about the program and eligibility is readily available. Seek it out and take the time to read it.
- Know your needs. Be sure you’ve used good accounting practices and are confident in the amount needed and that you have a plan for the funding.
- Find a good banking partner.
- Know the forgiveness process before you apply.
- Information about loan recipients is public record. This means it could be public record that your business received funding, and that information might be subject to public opinion.
“It has been a very challenging program to deliver, but it’s also been incredibly rewarding,” said Barrett. “I remember working until 10 p.m. seven days a week at the launch of the 2020 program to get the funding into the hands of people who needed it.
“Just knowing you might be the reason that someone is able to get their kid a birthday present or keep their lights on a little longer is incredibly rewarding.”