Five Things You Should Know About Second Draw PPP Loans

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On January 13, 2021, the Small Business Administration reopened the Paycheck Protection Program (PPP) again to small businesses around the country. This newest round includes a new type of loan called a Second Draw PPP Loan. The Second Draw loan is eligible to certain businesses that previously received a PPP loan and need further funds.

Here we explore the top five things you need to know about a Second Draw loan.

Second Draw loans are actually very similar to original PPP loans.


Second Draw loans are actually very similar to original PPP loans (now called “First Draw PPP Loans” by the SBA to differentiate the two). 

As with First Draw loans, Second Draw loans can be used to help pay employees, including funding employee benefits and worker protection costs related to COVID-19, as well as wages. Second Draw loans may also be used to pay for commercial rent or lease expense, interest on commercial real estate loans, and utilities.

Approved Second Draw loans have the same general loan terms as First Draw loans.

Borrowers can apply for a Second Draw PPP Loan until May 26, 2021.

 

Second Draw loans ARE different than First Draw loans in a few important ways.


If you’ve used up your original PPP funds and are applying for a Second Draw, you may be surprised to learn that you must now show revenue declines.

Specifically, you will need to demonstrate declines in your business revenue of at least 25 percent in at least one quarter of 2020, as compared to revenue in that same quarter in 2019. Here’s how.

(Alternatively, applicants may also compare annual gross receipts in 2020 with annual gross receipts in 2019 if they were in business in 2019).


You may use your Second Draw PPP funds in more ways than First Draw PPP loans allowed.


Compared to First Draw PPP loans, businesses may use the Second Draw funds for several additional purposes:

  • operations expenses (think software, accounting, or payroll services)
  • property damages incurred in 2020 that were not covered by insurance
  • supplier costs
  • worker protection expenses

For most borrowers, the maximum amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs, up to $2 million.


Second Draw loans may also be fully forgivable if certain conditions are met.

To qualify for full loan forgiveness, your business must spend at least 60 percent of the loan funds on payroll costs, maintain employee and compensation levels and use the funds for eligible expenses. 

To apply for a Second Draw loan, begin by collecting documents showing your revenue and a year-over-year decline in quarterly revenue of 25 percent or more. You'll need to submit these with your Second Draw loan application.

Finally, some good news: you may have less paperwork this time around.


On January 19, the SBA announced a streamlined forgiveness application for any PPP loan of $150,000 or less called a Form 3508S.

If you are applying for a Second Draw loan of $150,000 or less with the same lender as your first PPP loan, you do not need to submit payroll documentation. This simplified form requires basic calculations and attestation but does not require the borrower to submit supporting documents with the application.

Please note the SBA requires borrowers to maintain documentation of the use of PPP proceeds for six years and may request those documents at any time during that period.

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