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Small businesses can now apply for new funding through the Paycheck Protection Program program.
Congress revived the lending program with a relief bill signed into law on Dec. 27. The bill allocates $284.5 billion in forgivable coronavirus relief loans, including $137 billion for “second-draw” loans, to small businesses hit hardest by the pandemic shutdowns.
Applications for the latest round of PPP are staggered, with businesses applying through community financial institutions getting first dibs. The move is an attempt to prioritize funding for underserved business owners, including minorities and women.
Borrowers seeking a first- or second-draw loan can apply now through a CFI. Small lenders (those that have $1 billion or less in assets) began submitting first- and second-draw applications on Jan. 15. All other other approved lenders can do so beginning Jan. 19.
Here is what we know about how PPP will work in this latest round.
Who can get a new PPP loan?
First-time loans can go to a wider array of borrowers, provided they were in business on Feb. 15, 2020. Eligibility will now include news outlets with no more than 500 employees per location. In addition, 501(c)(6) nonprofits and destination marketing organizations may be eligible if they meet limits on lobbying and size.
Sole proprietors, self-employed workers and independent contractors or side gig workers are also eligible.
Publicly traded companies are excluded from the latest PPP round.
Some funding is now set aside to help specific struggling groups:
Grants to live entertainment venues and organizations, museums and movies theaters that demonstrate a 25% reduction in revenues. Grant recipients cannot also get a PPP loan.
Loans made through community financial institutions and some small depository institutions.
Money for borrowers with 10 or fewer employees and to provide loans under $250,000 in low-income areas.
Who can get a second PPP loan?
The new authorization provides funding for a second PPP loan for eligible businesses.
Second loans can go to previous borrowers if they have no more than 300 employees and can show a 25% drop in gross receipts in any 2020 quarter compared to the same quarter in 2019.
How much money can you get?
First-time loans continue to be capped at 2.5 times average monthly payroll costs, with a maximum of $10 million.
Second PPP loans have a $2 million maximum and generally use the 2.5 times average monthly payroll guideline. But the hard-hit accommodation and food service industries can borrow up to 3.5 times average monthly payroll costs.
How can the money be used?
For all loans, allowable expenses have been expanded to include operations items like software; supplier costs; protective equipment and workplace modifications to meet health guidelines; and damage due to 2020 public disturbances that's not covered by insurance.
The bill clarifies that group insurance benefits provided by an employer are considered payroll costs, including group life, disability, vision, or dental insurance.
PPP loans continue to cover payroll and operating costs such as rent and utilities.
What are rates and terms of the loan?
The loans are being offered at a 1% fixed rate interest. You aren’t required to put up collateral for the loans, and there are no application fees.
How do you apply for a PPP loan?
You can apply for a new PPP loan through any participating lender. Keep in mind: Some banks prioritize current account holders, so if you have a relationship with a bank offering PPP loans, apply there first.
A few fintech companies and online lenders, such as BlueVine, are approved to accept PPP loan applications. These companies typically offer a streamlined loan application process and may be able to approve loans and deliver funding more quickly than traditional banks.
How does PPP loan forgiveness work?
The new PPP authorization creates a simplified forgiveness process for borrowers who received loans less than $150,000.
PPP funds used on payroll costs, rent, utilities and mortgage interest in the 8 to 24 weeks after receiving the loan are forgivable. This means you won’t be required to repay that portion of the loan. But you must have spent at least 60% on payroll costs and no more than 40% on nonpayroll costs in order to receive full forgiveness.
What is the Paycheck Protection Program?
The Paycheck Protection Program was created on March 27, 2020, as part of the Coronavirus Aid, Relief, and Economic Security Act, also known as CARES, to help small businesses keep employees on the payroll. The program's primary tool is forgivable loans intended to make paying employees easier during the economic fallout of the coronavirus pandemic.
The SBA guarantees PPP loans, while banks and other financial institutions underwrite and issue them.
The first PPP round opened on April 3 but the $349 billion in initial funding was depleted in weeks. An additional $310 billion in funding was signed into law in late April, and applications closed on Aug. 8.
What are other coronavirus relief for small businesses?
The bill extends payment of principal and interest on loans guaranteed by the SBA as part of the 7(a), 504 and microloan programs.
The bill also increases the guarantee to 90% for the SBA’s signature 7(a) loans until Oct. 1, 2021.