Lenders with less than $1 billion in assets can now submit applications for the second round of the Paycheck Protection Program (PPP) starting today, but borrowers looking to use the program a second time will have more hoops to jump through than they did last year.
The newest rollout of the program by the U.S. Small Business Administration is nearly identical for first time PPP borrowers, but businesses looking to draw from the program a second time, will face a number of changes to ensure funds go to more small businesses.
The program, which gives eligible businesses a low-interest private loan to go to payroll and other costs, is funded through the $284 billion, bipartisan coronavirus relief bill signed into law last month.
During the first round of PPP loans, borrowers were given 2.5 times their average payroll costs with a max loan amount of $10 million. Anyone who has yet to apply for a loan through the program will still be eligible for that amount, but businesses drawing for a second time be limited to $2 million.
Borrowers in the restaurant and hospitality industries drawing from the program a second time have the opportunity to draw more from the program at 3.5 times their monthly payroll.
Businesses seeking a second PPP loan must have 300 or fewer employees, demonstrate a drop in revenue from one calendar quarter compared to the same quarter the previous year, and show they used all of their first-round money.
Ryan Hurst, a partner at CPA accounting and business consulting firm RKL, said that the majority of questions he is fielding concern the the added steps for second-time borrowers. The new round is designed to have a stronger emphasis on smaller businesses.
“Previously there was no real quantitative test to this,” he said. “This time, they say if you want a second loan, there needs to be a quantitative test because you can show performance and see if it declined or not. The attempt is to get more money into the hands of those that need it.”
While there may be more hurdles for borrowers seeking a loan, the administration has also made a number of changes this time around to give borrowers more freedom on how they spend the money. Previously PPP could only be used for payroll, rent, mortgage and utilities. The new law includes operations expenditures, supplier costs, worker protection expenditures and property damage costs.
Borrowers drawing for either their first or second time will qualify for full loan forgiveness if, during an eight-to-24-week period, employee and compensation levels are maintained, the proceeds are spent on eligible expenses and at least 60% of those proceeds are spent on payroll costs.
For businesses borrowing under $150,000, Hurst said it should be a relatively easy process to receive loan forgiveness.
“For a forgiveness application coming for loans under $150,000, that is supposed to be a simple one-page application for those borrowers,” he said. “If someone has a loan of $140,000, they can certify a number of things and say we used all the money and followed the rules and they can go on their way a lot more easily than someone with a larger loan.”
Harrisburg-based Centric Bank opened its loan portal for businesses to get a head start on their PPP loan applications earlier this week. Patricia Husic, president and CEO of Centric Bank, said that the bank has a much more automated loan portal this year, which should take the heavy lifting away from small businesses and make the processing of those loans much quicker.
“For some last year I heard it took them six to eight weeks to get their funds,” Husic said. “How do we turn it quickly and get it into their hands? Those are the key areas where I feel like we are in a better position.”
The SBA plans to reopen the PPP program to lenders of all sizes on Tuesday.