Small businesses can now apply for more forgivable funds.
The Paycheck Protection Program (PPP) provided millions of small business owners with much-
needed funds during the coronavirus pandemic last summer. Now, Congress has revived the
PPP with a “second-draw” loan program worth $137 billion, which they signed into law on
December 27, 2020. The second-draw program is meant to provide additional aid to struggling
businesses, including those that already received PPP loans in 2020.
Starting Wednesday, January 13, 2021, the Small Business Administration (SBA) began
accepting applications for the second-draw PPP loan. Because applications will close on
March 31, 2021, it is critical for your business to prepare now and apply as soon as
Here, we’ll discuss who qualifies for a second-draw PPP loan, how much your business can
receive, the rules to follow to gain forgiveness from the loan, and finally, how to apply.
Second-Draw PPP Loan Eligibility
The easiest way to determine whether or not your business is eligible for a second-draw PPP
loan is if you applied for and received the initial round of funding. Otherwise, you must meet the
following criteria to qualify:
● Your business employs no more than 300 people.
● You can prove at least a 25% decrease in annual gross receipts for any quarter of 2020
(compared to the same time period in 2019).
● Your business has not permanently closed.*
● You have already used or will use the full amount of your first PPP loan.
*Businesses that had to temporarily close or suspend operations in 2020 are eligible for the
second-draw PPP loan.
How Much Aid Can Businesses Expect?
If you received the original PPP loan, you can expect more of the same formula, with borrowers
receiving up to 2.5 times their average monthly payroll expenses or $2 million—whichever is
This is different for businesses in the accommodation and food-services industries. These
businesses can anticipate receiving up to 3.5 times the average monthly payroll costs up to $2
You can calculate your payroll costs either by referencing the calendar year of 2019 OR 2020,
or the 12 months prior to your loan application.
Ultimately, because every business’ situation is different, working closely with your lender will
help you understand the most you can expect to receive from the second-draw PPP loan.
Just like the first round of PPP loans, the second-draw loans are forgivable, so long as the funds
are spent on approved costs. To ensure you don’t end up owing the federal government money,
only spend the PPP funds on the following:
● Payroll costs, including benefits*
● Operating costs, including rent, utilities, mortgage, etc.
● Personal protective equipment (PPE) and other costs accrued to meet new health-and-
● Property damage experienced from protests/riots/unrest in 2020
● Payments to suppliers contracted before taking out the second-draw loan
*At least 60% of the second-draw loan must be used on payroll expenses.
Learn more with a deep-dive into how to get your PPP loan forgiven here.
How to Apply
Fortunately, if you applied for the first PPP loan, you can avoid a lot of paperwork by using the
same lender. This, however, means you must use the payroll figures from calendar year 2019
when applying for the second-draw loan.
Otherwise, businesses must submit the proper documentation to prove their payroll costs and
decrease in revenue if they are seeking over $150,000. That documentation must prove that
you lost 25% or more in revenue in 2020 compared to 2019. Such documentation can include
tax forms or quarterly financial statements, but your lender will be able to direct you toward the
specific documentation your business should submit.
The SBA has already forgiven more than 1.1 million PPP loans granted in 2020. With this in
mind, your business should strongly consider applying for the second-draw program, which can
provide much-needed funds in a forgivable format.
As always, we at CREDO recommend consulting your tax professional for guidance on your
business’ specific situation. For further information and help, schedule a complimentary
consultation with CREDO today.