Second Draw PPP Loans: What You Need to Know

As businesses continue to grapple with the challenges posed by the COVID-19 pandemic, financial relief programs like the Paycheck Protection Program (PPP) have been crucial in helping them stay afloat. Although the PPP officially ended on May 31, 2021, eligible businesses who have previously received a PPP loan may still have the opportunity to apply for a Second Draw PPP loan. Additionally, businesses that have already received a PPP loan can seek loan forgiveness by meeting specific criteria and going through a step-by-step application process. In this article, we will explore the details of Second Draw PPP loans and provide a comprehensive guide on how to apply for PPP loan forgiveness.

Second Draw PPP Loans: An Overview

The Second Draw PPP loan is a lifeline for businesses that have already benefited from the initial PPP loan and continue to face financial challenges due to the ongoing pandemic. This extension of the program provides additional financial assistance to eligible businesses, allowing them to continue supporting their workforce and maintaining essential operations.

To qualify for a Second Draw PPP loan, businesses must meet specific eligibility criteria. Firstly, they should have previously received and utilized the full amount of a First Draw PPP loan in accordance with the program’s guidelines. This requirement ensures that businesses have already benefited from the initial support and are now in need of additional aid. Secondly, the number of employees plays a crucial role, as eligible businesses must have no more than 300 employees. This criterion aims to assist smaller businesses, which are often the most vulnerable during economic downturns.

Additionally, businesses seeking a Second Draw PPP loan must demonstrate a significant decline in revenue. To fulfill this requirement, they need to show at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. This reduction in revenue is indicative of the adverse impact the pandemic has had on their financial stability.

The loan amount for most borrowers is typically determined based on their average monthly payroll costs in 2019 or 2020. This value is then multiplied by 2.5, with a maximum loan amount of up to $2 million. This provision ensures that businesses can access a substantial amount to cover essential expenses and protect their workforce. However, businesses in the Accommodation and Food Services sector may be eligible for a higher loan amount of up to 3.5 times their average monthly payroll costs, also capped at $2 million. This sector-specific provision recognizes the severe impact the pandemic has had on industries that heavily rely on foot traffic and in-person interactions.

Application Process for Second Draw PPP Loans

The application process for Second Draw PPP loans is designed to be streamlined and accessible for businesses seeking financial support. All Second Draw PPP loans follow the same set of terms, regardless of the lender or borrower. This consistency ensures that all eligible businesses have equal opportunities to access financial aid without unnecessary hurdles.

To initiate the application process, interested borrowers can access and download the required forms from the Small Business Administration (SBA) website. The PPP Second Draw Borrower Application Form or the Second Draw Borrower Application Form for Schedule C Filers Using Gross Income are the essential documents for preparing the required information.

For businesses that have already submitted their initial PPP loan applications to the SBA through their lenders, there is a convenient option to monitor their loan status. They can create an account in the SBA Capital Access Financial System (CAFS), where they can track the progress of their application and stay informed about any updates or actions required. This monitoring feature gives borrowers peace of mind and transparency during the loan evaluation process.

However, if borrowers have any uncertainties or concerns about their application status or need additional information, it is crucial to establish direct communication with their lenders. Lenders play a critical role in the application process, and they can provide valuable guidance and support to businesses seeking financial assistance.

Navigating the Second Draw PPP loan application process efficiently is essential for businesses looking to secure the necessary funds and maintain their operations during these challenging times. By meeting the eligibility requirements and diligently preparing the required documentation, businesses can enhance their chances of accessing the financial aid they need to weather the storm and emerge stronger on the other side.

Applying for PPP Loan Forgiveness: A Step-by-Step Guide

As businesses move forward in 2023, loan forgiveness remains a critical aspect of PPP loans. To have your PPP loan forgiven, there are several requirements set by the SBA that you must meet. Full loan forgiveness can be obtained if you maintain employee and compensation levels, use the loan proceeds for eligible expenses (including payroll costs, protective equipment, supplier costs, employer-provided group insurance payments, property damage, and operational expenses), and spend at least 60% of the proceeds on payroll costs.

Step 1: Use the Portal (If You’re Eligible)

The SBA provides a dedicated page for PPP loan forgiveness, along with the application and instructions. If your PPP loan was $150,000 or less and you used one of the participating lenders, you can use the SBA’s Direct Forgiveness Portal to submit your forgiveness application directly. For borrowers without a participating lender, they will need to apply through their lender, who will provide them with the appropriate form.

Step 2: Get Your Paperwork Together

To support your forgiveness application, be prepared to provide documentation for both payroll and non-payroll expenses during the covered period. Payroll documentation may include bank account statements, third-party payroll service provider reports, tax forms (e.g., Form 941), and receipts documenting employer contributions to health insurance and retirement plans. Non-payroll expenses may require documentation for business mortgage interest payments, rent or lease payments, utility payments, operations expenditures, property damage costs, supplier costs, and worker protection expenditures.

Step 3: Submit the Form

Once you have gathered all the necessary documentation, submit your forgiveness application. Eligible borrowers can use the Direct Forgiveness Portal to submit the application directly to the SBA. If not eligible for the portal, borrowers should submit the application and documentation to their lender.

Step 4: Await the Decision (and Appeal, If Necessary)

After submitting your application, the SBA or your lender will notify you of their decision within 60 days. If they approve loan forgiveness, it could be for the full amount or a partial amount. In case of partial forgiveness, borrowers will be responsible for repaying the remaining amount with 1% interest over the loan term. If the SBA denies your loan forgiveness, you may be able to appeal the decision through the SBA’s Office of Hearings and Appeals (OHA) within 30 days of the decision.

Final Notes

As businesses continue to navigate the challenges brought on by the pandemic, the PPP and Second Draw PPP loans have been valuable lifelines. Additionally, applying for PPP loan forgiveness is crucial to ensure maximum financial assistance. Small businesses should carefully review the eligibility criteria, gather the required documentation, and follow the step-by-step application process to secure loan forgiveness successfully. By taking advantage of available relief options, businesses can enhance their resilience and pave the way for a brighter future.

What if I Lose My Appeal?

Any appeal denied in the Office of Hearings and Appeals will have to go to a higher court. Why? Because SBA is a federal agency. The process of going to federal court can be extremely tedious and expensive due to the strict regulations. 

To avoid the costly and time-consuming process of going to the federal district court, we recommend hiring a qualified attorney to make sure you’re building a strong appeal for your business.

While each case is unique and this is not an indication of success in other cases nor a promise of results, our team at Milikowsky Tax Law has extensive experience in government audits and cases involving government entities from IRS to SBA and CSLB.  Contact Milikowsky Tax Law and learn how we can help.