Businesses with fewer than 300 employees can now apply for the second round of Paycheck Protection Program (PPP) loans, nicknamed PPP-2, provided they meet certain requirements.
Since the start of 2021, when it reopened with fresh funding after being closed the previous August, the PPP has approved nearly 2 million loans totaling $140 billion.
Significant changes from the first round of PPP loans include:
- An even narrower focus on growing businesses: PPP-2 applicants must have fewer than 300 employees, whereas first-time (“first-draw”) PPP applicants can have up to 500 employees.
- A broader range of allowed expenses: Whereas a company’s first PPP loan has to be spent almost entirely on payroll, you can spend 40% of your PPP-2 loan on items including:
- Personal protective equipment (PPE) for employees and changes to your facilities that allow you to comply with federal COVID-19 guidelines.
- Property damage related to “public disturbances” in 2020.
- Expenditures to suppliers that are “essential to your current operations.”
- Business software or cloud computing services that “facilitate business operations,” like accounting software or monthly cloud subscriptions and ecommerce tools, if they’re deemed to facilitate operations.
Watch our Q&A on PPP-2 loans with Kedma Ough, vice president of business coaching with Conquer, an online training business. Then, dive into the details below.
Who can apply for a 2nd PPP loan?
If this will be your second time getting a PPP loan, then you’ll need to meet stricter application criteria than the first time around. (If you didn’t get a first-draw PPP loan, then you can still apply under the original criteria, including the “500 employees or fewer” rule. See “What If I’m Applying for a PPP Loan for My First Time?” below.)
In order to apply for a PPP-2 loan, your business needs to:
- Have received a first-draw PPP loan and spent or plan to spend all of it before you receive the PPP-2 loan.
- Have fewer than 300 employees per location. This means, for example, that franchises can apply, according to Ough.
- Show a 25% decline in gross revenue in 2020 compared to 2019.
Jason Balk, the CFO of advertising company Adtegrity, applied for a PPP-2 loan in early February. His 35-person firm already spent its first-draw PPP loan and got it forgiven. Revenue dropped last year due to the pandemic and is now climbing back to normal levels, Balk said, but “it’s not quite there yet … because some of our clients haven’t come back to the point we expected them to by this time. Generally speaking, those clients are in the hospitality and travel industries.”
“The original [PPP] loan essentially brought us to breakeven in 2020, from a cash flow perspective,” he added. “We are anticipating some volatility [this year] depending on the timing of certain industries returning to advertising, so that’s why we applied for the new loan. The second PPP loan should carry us through this year, and then hopefully 2022 [returns to] solid growth again.”
How much money can I get from a PPP-2 loan?
PPP-2 loans can be a maximum of 2.5 times your average monthly payroll costs or $2 million, whichever is less.
When can I apply for a PPP-2 loan?
As of Jan. 19, you can apply with any lender; some lenders were allowed to start accepting applications the week prior. Beginning February 24, only businesses with fewer than 20 employees can apply for the next round of funding. Starting March 10, all businesses that meet the above criteria have until March 31 to submit an application.
What is the PPP-2 application process?
If possible, you should apply for the loan via the same lender as your first PPP loan. In most cases, this is your bank. The Small Business Administration (SBA) has a lender match tool, if you need help finding one. You should also consult your CPA, tax advisor or accountant, said Linda Brown, president of consulting firm Spire Business.
- If you use the same lender as your first-draw PPP loan — and use the same 2019 payroll information for both loans — then you won’t be required to submit any payroll information with your application, as the lender already has this information.
- If you use a different lender or won’t be using the same payroll for calculating your PPP-2 loan, then you’ll need to submit similar payroll documentation to what you provided for your first-draw PPP loan.
Adtegrity’s Balk applied for his company’s second PPP loan through TCF Bank, the same one he worked with the first time around.
“It helps to apply through the same bank,” he said, as the bank already had much of Adtegrity’s application information on file. The firm was able to get its second PPP application uploaded to the bank, complete the loan verification process and receive funding within two weeks of starting the process.
Can I get the PPP-2 loan forgiven? What can I spend it on?
You can get your PPP-2 loan forgiven if, over your “covered period” of 8-24 weeks, you:
- Spend at least 60% of the funds on payroll.
- Maintain employee and compensation levels in the same manner as required for the first-draw PPP loan. This means you need to maintain the same number of full-time employees during your “covered period” and pay these employees at least 75% of their usual compensation.
You can spend the remaining 40% of your loan on payroll or other “eligible costs.”
These “eligible costs” include those outlined in the original PPP:
- Covered mortgage interest
And, in a change from the original program, “eligible costs” for PPP-2 also include:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines. Businesses might, for example, use some of their PPP-2 money to improve office ventilation systems or provide onsite health screenings.
- Covered property damage costs related to property damage and vandalism or looting due to public disturbances in 2020 that were not covered by insurance or other compensation.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating expenditures*, which refer to payments for any business software or cloud computing service that facilitates:
- business operations
- product or service delivery
- the processing, payment or tracking of payroll expenses
- human resources
- sales and billing functions
- accounting or tracking of supplies, inventory, records and expenses
*In other words, you can spend your PPP-2 money on expenses that keep your business going. In the IT category, this might include accounting software or monthly subscriptions to cloud software. In the suppliers category, this includes everyday operational needs: A home services company, for example, might spend PPP-2 funds on chemicals for fumigations.
Like many, the guidelines around eligible expenses are “open to interpretation,” Ough said. In general, you’ll qualify for loan forgiveness if those 40% of allowable expenses beyond payroll “move the dial forward” for your business.
“[PPP-2] funds are intended to ensure you can do the business you need to,” she added. “If you can prove to anyone looking at the audit that a supplier cost was needed for you to be successful, then you’re going to be fine [when applying for loan forgiveness].”
Adtegrity, for example, plans to spend its PPP-2 loan much as it did its first: on payroll, employee benefits and rent, said Balk. If any funds are leftover, they may go toward monthly subscription fees for the applications Adtegrity uses, like NetSuite ERP.
?️ Get advice on accounting for PPP and PPP-2 loans.
What if I applied for a first-draw PPP loan and my application still hasn’t been approved? Can I apply for PPP-2?
Not right now. If your first-draw PPP loan is under review with the SBA, then you won’t be able to successfully submit a PPP-2 loan application until that first loan is resolved.
The SBA said it’s speeding up its efforts to resolve outstanding PPP applications. It’ll also set aside money — it doesn’t say how much — for folks who still need to resolve their PPP applications before applying for PPP-2.
What if I’m applying for a PPP loan for my first time?
You’ll apply as a first-draw borrower under the original PPP application criteria. These businesses must:
- Have fewer than 500 employees.
- Have been in operation as of Feb. 15, 2020.
Since PPP-2 can go toward items other than payroll, which investments should I be thinking about?
That really depends on your individual business. If you’re like the CFOs in a recent Brainyard survey though, then you’re planning to prioritize spending on two things this year: payroll and IT/technology. And analysts advocate cloud-based technology — all of which bodes well, as PPP-2 recipients can spend up to 40% of the loan on business software and cloud computing services while remaining eligible for loan forgiveness.
A PPP-2 application could be a great reason to evaluate an enterprise resource planning (ERP) system or other business automation tool. Your business is especially well-suited for these tools if existing systems are making day-to-day processes overly complicated — or preventing you from performing them at all. Take for example an accounting software that can’t perform multi-entity accounting or connect to your inventory tool.
For example, Adtegrity pursued automation projects to deal with the recent drop in revenue, Balk said.
“Like many small and medium-sized businesses, we were hanging by a thread last year, essentially, so we had to start focusing on efficiencies,” he added. “Our IT group was focusing on workflow projects and automation."
In the coming months, the team will look at tools that could further automate processes, he said. For example, Adtegrity might consider additional system integration projects by utilizing existing APIs with vendor platforms with the goal of reducing manual work like data entry or campaign provisioning.
Balk said he encourages other companies to apply for a PPP-2 loan and consider similar investments, including an ERP system like NetSuite.
“To utilize the [loan] money and make those investments now as opposed to later makes sense,” he said. “I think that companies should — and we are — looking at different technologies that will help make us a bit more profitable and efficient, while maintaining our great customer service.”
Evaluating new business systems is no small feat, but it’s almost always worthwhile. For example, research shows that cost savings is the biggest area in which ERP systems generate ROI, and the average time to ROI for those systems is just over 2.5 years.
Our experts are on-hand to kickstart your research into business automation tools. Ways to get started:
?️ Get a free product tour of NetSuite ERP.
?️ Watch a demo of NetSuite ERP in action.
?️ Hear from businesses similar to yours on what it’s like to choose and use an ERP tool.
After applying, when will I get my PPP-2 loan money?
Processing time will vary by lender, according to Ough, who expects applications made through her firm will take three to four weeks to process. The SBA must approve your loan application, a process that many applicants called lengthy and confusing in the program’s first iteration. Things are looking up for round two: The SBA approved 60,000 applications in the week after the program reopened on Jan. 11, the organization tweeted.
What moves should I make while waiting for the loan to come in?
- Prepare your budget, said Ough. Map out how a PPP-2 loan would factor into your marketing plans and sales projections, for example.
- Ough also advises her clients to evaluate grants and other forms of financial aid, as well as business credit cards that are interest-free for the first few months of use.
- Ask to renegotiate lease terms with your landlord, as Ough did herself.
- Set up a separate bank account that will hold PPP-2 loan money when it comes in, said Robert Intelisano, president of insurance agency Intelisano & Associates. Separating these from your company’s other funds is “the cleanest way” to document PPP-2 spending.
We’ll continue to update this article with the latest loan application information and insights.