The federal government has officially extended the Paycheck Protection Program (PPP) into 2021. This extension has the potential to provide additional financial relief to the thousands of small businesses that have suffered losses related to the COVID-19 pandemic.
In 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act earmarked nearly $350 billion to the PPP to help small businesses keep workers employed during the pandemic. Through this program, the U.S. Small Business Administration (SBA) provides 100% federally guaranteed loans to small businesses. The best part is that—as a small business owner—if you maintain your business’s payroll during the crisis or restore it after businesses are back up and running, you may not have to return the loan.
The SBA is currently offering first draw and second draw loans.
First Draw PPP Loans are for businesses that didn’t receive a PPP loan before August 8, 2020. Here are the highlights:
- Loans can be used to cover payroll costs, including benefits.
- Loans also may be used to pay your mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.
- Loans have an interest rate of 1%.
- Loans issued after June 5, 2020, have a maturity of five years.
- Loan payments will be deferred for borrowers who apply for loan forgiveness until the SBA remits the borrower’s loan forgiveness amount to the lender. If a borrower doesn’t apply for loan forgiveness, payments will be deferred for 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).
- No collateral or personal guarantees are required.
- No fees will be charged by the government or by lenders.
The following COVID-19-affected business entities are eligible for First-Draw PPP Loans:
- Sole proprietors, independent contractors, and self-employed persons
- Any small business that meets the SBA’s size standards (either the industry-based sized standard or the alternative size standard)
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans’ organization, or Tribal business concern with 500 or fewer employees or a business that meets the SBA industry size standard if more than 500 employees
- Any business with a NAICS Code that starts with 72 (Accommodations and Food Services) with more than one location and less than 500 employees per location
Second Draw PPP Loans are for businesses that have 300 employees or less and received already received a PPP loan. Here are the highlights:
- Loans can be used to cover payroll costs, including benefits.
- Loans also may be used to pay your mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.
- Lenders must be able to demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
- At least $25 billion has been allocated specifically for eligible borrowers with 10 or fewer employees or for loans of $250,000 or less to eligible borrowers in low- or moderate-income neighborhoods.
- The maximum amount of a Second Draw PPP Loan is $2 million.
In both the first-draw and second-draw programs, the SBA will forgive loans if all employee retention criteria are met and funds are used for eligible expenses.
More resources:
Thanks for reading our article posted on January 20, 2021. Please note that this content is intended for educational purposes only. As COVID-19 laws and funding change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. See more small business resources or check your current rate in 3 minutes.
