Second Draw Paycheck Protection Program (PPP) Loan: What to Expect as a Small Business Owner

The Second Draw Paycheck Protection Program (PPP) loan intended to help small business owners during the coronavirus pandemic was set to expire on March 31, 2021, but was recently extended through June 30, 2021. There are many businesses still hoping to receive funding. If you’re one of them, read along as we answer a few frequently asked questions surrounding the Second Draw PPP loan.

What is it?

The Second Draw PPP loan can be used to help fund payroll costs, including benefits. Funds from this loan can also be used by businesses to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, certain supplier costs, expenses for operations, and more.

This PPP loan also offers the maximum loan amount and increased assistance for accommodation and food services businesses. For most borrowers, the maximum loan amount of a Second Draw PPP loan is 2.5x the average monthly 2019 or 2020 payroll costs, up to $2 million. For borrowers in the accommodation and food services sector, the maximum loan amount for a Second Draw PPP loan is 3.5x the average monthly 2019 or 2020 payroll costs, up to $2 million.

Who is eligible?

Those seeking a Second Draw PPP loan must have:

• Previously received a PPP loan and plan to use, or already have used, the full amount for qualifying expenses.
• No more than 300 employees.
• Been in operation before February 15, 2020.
• Experienced at least a 25% reduction in gross receipts between comparable quarters, or annually, in 2019 vs. 2020.

How can I apply for it?

If you’re interested in applying for the Second Draw PPP loan, contacting your existing bank should be your first move. Your bank will already have documentation verifying you and your company, which should help you avoid providing any additional background information.

At Paragon Bank, we’ve reached out to many customers we have on file who qualify for the Second Draw PPP loan, to see if they are interested in applying. And many of our customers have proactively contacted us for help with the application process.

If you have an existing banking relationship, the commercial lending department is also a good starting point. While they may refer you to another department, they will be more than equipped to direct you to the right place. Your bank’s website may also be a good place to start, as many banks have set up web portals to handle requests.

In advance of completing your application, it is important to be prepared with proper documentation. You can find the most up-to-date application on sba.gov. You’ll need payroll information (such as Form 941), tax returns and bank statements. If you’re planning on working with a new bank, it’s important to know that they will need Bank Secrecy Act (BSA) identification requirements, such as driver’s licenses, beneficial ownership forms, and business organizational documents.

What if I never received the First Draw PPP loan?

It is important to note that borrowers who did not previously take part can still apply for a First Draw PPP loan. These loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week coverage period following the loan disbursement:

• At least 60% of the loan proceeds are spent on payroll costs. The remaining can be spent on eligible covered expenses.
• The borrowing entity has 500 or fewer employees – including nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors.
• Those filing a Schedule C with their 2019 or 2020 tax returns can use their gross wages instead of net income.