How is the Latest Round of PPP Loans Different?

The next round of Paycheck Protection Program (PPP) Loans is now open, and businesses can apply through the end of March. Borrowers that received First Draw PPP Loans and have already used or will use the funds for authorized uses can apply for a Second Draw PPP Loan.

While the first round of PPP loans was launched quickly with little prep time for advisors, many firms have since dedicated significant staff to assisting clients as they evaluate their financing options and submit PPP loan applications. The result is better support for organizations faced with making difficult financial decisions as they navigate an uncertain business landscape. So, as you consider applying for a PPP loan this time around, lean on an experienced third-party financial consultant to help you understand if you qualify, what the differences are from the previous round, and whether this type of lending is the best fit for your specific circumstances and long-term goals.

Since this is the second go-round, the rules are more clearly defined this time, leading to less ambiguity and confusion than there was with the first loan program. Some of the differences this time around include:

---

Increased Eligibility
A broader array of organizations can apply this time around, meaning that if you did not qualify previously, you may be eligible. Chambers of commerce, small newspapers, and housing cooperatives are among the new batch of organizations able to apply. Additionally, nonprofits, veterans’ organizations, self-employed individuals, and independent contractors can all apply.

Covering the Hardest Hit
Second Draw PPP Loans are meant to cover businesses that have been the hardest hit through the pandemic. Companies that received a first round PPP Loan that have seen a 25% decrease in gross receipts from any quarter in 2020 compared to the same quarter in 2019 (or a 25% decrease in gross annual receipts from 2020 compared to gross annual receipts from 2019) could be eligible to apply again. This reduction can be substantiated through quarterly financial statements or bank statements.

A few things to keep in mind are:

• You should not include forgiven First Draw PPP Loans or EIDL advances in gross receipts.
• If you did not receive a first round PPP loan, and you meet the economic uncertainty clauses, you are not required to meet the 25% decline requirement.
• For loans of $150,000 or less borrowers do not have to submit documentation proving a 25% decrease in revenue at the time of the loan application.

​
​Greater Scrutiny
The increased eligibility this time around also brings greater scrutiny of applicants. The first round of PPP Loans saw a lot of ineligible and fraudulent applications, and this second round aims to close the door on that behavior.

Remember, the self-certification of need document is a component of the application and it should only be declared when that need is truly present. As Todd Kimball explains,

“First of all, you should determine if you’re eligible either for the first round or second round. There are different criteria, but both require the signing of a good faith certification of economic necessity.  There was a questionnaire released from the SBA, intended to be answered for loans in excess of $2M.  While this doesn’t apply to everyone, it gives indications for the types of ‘economic necessity’ the SBA is considering.  Things like declines in revenue, increased costs, access to cash and investments, and pre-payment of debt.”​

You can use the tool yourself: PPP Loan Necessity Questionnaire (For-Profit Borrowers)

Payroll Cost Calculation
First Draw PPP Loans relied on payroll cost calculations from the previous 12 months. For Second Draw PPP Loans, those original calculations should not be used. Instead, borrowers will need to use payroll costs from either 2019 or 2020 calendar years for their loan amount calculation.

Additional Coverage
A key difference with this second round of PPP Loans is what the funds can cover. While the program was initially limited to payroll expenses, PPP loans can now cover additional expenses such as operations expenditures, property damage costs, supplier costs, and worker protection expenditures. Most importantly, property damage costs related to looting or vandalism in 2020 that were not covered by insurance or other compensation are also covered.

Lenders are in The Driver Seat
On top of PPP regulations, lenders themselves can set additional requirements. Knowing which lender to utilize is a critical decision. This is one area where an advisor can help significantly – recommending the right type of lender based on their individual lending criteria as well as leveraging existing professional relationships.

If you do not have a CFO to navigate this type of decision-making, lean on an experienced CFO consultant to provide the guidance you need during these unprecedented challenges.

This article was written in conjunction with our partners at CFOS Selections