The Paycheck Protection Program has been crucial for small businesses weathering the coronavirus pandemic. Given its importance, of this program and the next round of funding it's important for business owners to understand what has changed this time around for the PPP.

January 2021 PPP Update Highlights

The Department of the Treasury, partnering with the Small Business Administration, decided to open the second round of the PPP loan during the week of January 11th. Along with the announcement of the second round, new rules were announced to promote access to capital. This is a significant update from the initial round of PPP funding.

These updates include the following changes:

• Businesses can have a variable covered period for the loan, ranging from 8 to 24 weeks. This is to help meet the unique needs of different companies.
• The additional funding from this round can cover new and additional expenses. Covered expenses for this round include operations expenditures, supplier costs, property damage, and worker protection costs.
• More companies are eligible for this funding round, including some destination marketing organizations, housing cooperatives, and 501(c)(6) setups.
• More flexibility is available for handling seasonal employees.
• Some existing borrowers can modify previous loans or apply for new stimulus loan help.

Note that disaster loans (EIDL) can have different rules compared to regular loan options. PPP loan round two payments can go to various companies but expect the Small Business Administration to ask for collateral. You may be able to use these loans to pay for things that you may not be able to use other loans for, including some other bills or accounts payable.

What are the changes in the Rules For Eligibility?

The eligibility rules vary depending on whether you’re applying for a first draw or a second draw. For first draws, the changes are primarily in which businesses are able to apply for them. If you couldn’t apply for a loan before, you may be able to do so now if you’re part of the expanded eligibility coverage.

For a second draw application, you need to meet additional criteria, as described below. Loans may be essential for your business to survive a recession caused by the coronavirus pandemic.

Can I Apply For Additional Funding?

You may be able to apply for additional funding if you meet the following criteria:

1. You previously received the first loan and you will, or have already, used the full amount exclusively for authorized uses. Expect them to ask for receipts or other proof that you’ve spent the money entirely in accordance with the rules.
2. Your company has no more than 300 employees. Any companies larger than this are not eligible for SBA loans under the PPP. Restaurant owners usually don’t have to worry about this, but if you run several stores in one chain, it may be an issue.
3. Your company has a reduction of at least 25% in gross receipts compared to a similar time period in 2019 and 2020. Essentially, this means you need to show that the pandemic is legitimately harming your business and that you need the financial assistance. If your company is not struggling financially, you will not be eligible for the additional financial assistance.

Do SBA Loans Have To Be Paid Back?

Normally, yes. While the exact repayment terms may vary depending on the loan, you usually need to repay  your loan within two years. The SBA does not typically forgive debts for businesses that are still operating.

In regards to small business loans,  coronavirus forgiveness programs may change this. Despite this, you should not rely on that help absent further legislation or agreements. If you’re unsure about your ability to repay SBA loans, talk with your lender or accountant for more information.

How To Submit an Application

Follow these steps to submit a PPP application.

1. Access your PPP application. This usually happens online on the Small Business Administration website, but if you’re doing it through a partner, you might do it with them instead.
2. Check your business information. Add, update, or confirm the information on your application as needed. Make sure you fill in every section and double-check the accuracy of all sections. You should ask for exactly 2.5 times your average monthly payroll costs.
3. Add the new information. The PPP now requires information on your business start date and your industry. This is mainly a fraud prevention measure. The business start date needs to match the information on the business filing with your Secretary of State.
4. Confirm your ownership percentage. This is for your ownership of the business, and it must be an amount greater than 0. You can apply for the program if you own less than 100% of the business.
5. Add Additional Owner Information. In this section, you’ll need to report information for any people that own at least 20% of the business. You’ll need copies of their driver’s licenses, including both front and back, so prepare those now if you don’t already have them.
6. Upload any necessary documents. You must submit all relevant documents, including driver’s licenses (or an equivalent of identification) for applicable owners, business account bank statements, proof of payroll expenses, and 941 quarterly tax filings (or IRS 1040 Schedule C, for independent contractors or self-employed workers).
7. Check for additional instructions. Your partner or lender may require additional steps before you can access your funds. They may also ask for information like receipts to help demonstrate your compliance with the loan terms. Remember that the SBA.com website does not lend directly; loans typically go through financing partners.

Is Round 3 In The Works?

It is likely that there will be a third round of PPP small business loans. Although, it is not yet certain if businesses will be able to apply for a third loan when that happens. The second round of the PPP loan is just beginning, with various start times depending on the type of company you have.

If round three does occur, your status and eligibility may change to reflect new guidance or legislation. This is why you should continue to check for changes with each round of stimulus loans, even if you already received money during a previous loan period. You may also see benefits from a new CARES act or other business support during the 2021 meeting of the U.S. Congress.