The Senate has approved a two-month extension on the second round of Paycheck Protection Program (PPP) tax-deductible loans meant for business owners struggling to cover overhead costs. A new deadline of May 31 was deemed needed, as there was a growing backlog of proprietors who needed more time to file their applications. Here’s what you need to know, and how to apply.
What is the PPP?
As part of the CARES Act passed last March, the first iteration of the PPP provided a total of $519 billion for forgivable loans to help businesses cover payroll and overhead costs during the pandemic. In the latest relief package, a second round of first-come, first-serve PPP loans totaling $284 billion has been made available.
The U.S. Small Business Administration (SBA), which runs the program, was criticized for inequitably doling out the first round of funding, as banks favored existing customers—which benefitted, among others, businesses run by members of Congress and large publicly traded companies that already have access to capital markets.
As a result, “PPP 2.0” set aside funds for small-sized businesses, and increased the scope of expenses that PPP loans can be used for, including business software expenses, supplier payments, and COVID-related costs like ventilation or PPE. However, per Forbes, the approval process for these loans has been slowed down by technical glitches and additional guidance needed for independent contractors, which is why the deadline needed to be extended. The bill is now headed to President Biden for his signature, which is expected this week.
Who qualifies for PPP?
First-time PPP borrowers qualify if they own a business with up to 500 employees, were in operation as of Feb. 15, 2020, and can provide payroll documentation to demonstrate a revenue loss.
The eligibility requirements for second draw PPP Loans are narrower than first draw PPP Loans. The cap remains at $2 million, but it’s limited to borrowers with 300 or fewer employees. Borrowers must also demonstrate a quarterly gross receipts loss of 25% or more versus the same quarter in 2019.
Both first- and second-draw loans can be forgiven if at least 60% of the total loan is used on payroll expenses (although second-draw borrowers with a principal amount of $150,000 or less are required to provide documented proof of revenue loss).
How to apply
Eligible businesses can apply for a PPP loan directly with an eligible private lender like a bank, community lender, or credit union. The program will remain open for applications through May 31, 2021. For more information and to receive an invitation to apply for a PPP loan, click here.
This story was originally published in Fed. 22, 2020 and updated on March 29, 2021 with new information.