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By Julia Glum
January 11, 2021
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The Paycheck Protection Program is officially open for (small) business again.

For the first time since August, entrepreneurs impacted by the coronavirus crisis can apply for forgivable loans through the PPP, a U.S. Small Business Administration (SBA) initiative drafted at the start of the pandemic to help businesses retain employees. Now there’s $284 billion on the table for job retention and other expenses. Applications opened Monday.

Hailed as a lifeline for American small businesses in early 2020, the PPP experienced several tech glitches and minor controversies before closing last summer. The federal government revived the program with the stimulus package President Donald Trump signed into law on Dec. 27, but there are some major differences this time around.

Here’s what you need to know.

PPP round 2 is more targeted

The first round of PPP was generally open to small businesses, nonprofits and contractors with a maximum of 500 employees. The second round has similar eligibility requirements — but only for first-time applicants. (More on that below.)

With PPP 2, the SBA says it’s trying “to promote access for smaller lenders and their customers,” specifically “eligible borrowers in underserved and disadvantaged communities.”

Initially, for example, only community financial institutions can make loans. That includes minority depository institutions, farm credit system lenders, microlenders and certified development companies. The government also set money aside for borrowers with a maximum of 10 employees and for those requesting loans under $250,000 located in low- or moderate-income neighborhoods.

These policies come after PPP 1 had a rocky rollout last year that excluded many minority- and women-owned businesses from accessing loans. The SBA says the PPP will open to all lenders “shortly.”

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The funds still have to (mostly) go toward payroll

In order to qualify for full forgiveness, at least 60% of a borrower’s PPP loan has to be spent on payroll (it’s called the Paycheck Protection Program, after all), meaning eligible businesses are obligated to maintain employee and compensation levels.

PPP funds can also go toward rent, utilities and interest on debt payments. PPP 2 allows proceeds to be spent on operations, property damage, supplier costs and worker protection, too.

First draw vs. second draw PPP loans

Business owners who already got one PPP loan can now apply for another. But the rules are stricter this time around.

If you’re a business owner applying for what’s called a “second draw,” you can only have a maximum of 300 employees. You’ll also have to use up the first PPP loan, spend it on authorized costs and be able to demonstrate at least a 25% decrease in revenue from 2019. The initial round of PPP didn’t have this requirement, though you did have to certify that “current economic uncertainty [made] this loan request necessary to support the ongoing operations.”

Second draw PPP loans have basically the same terms as first draw ones: The SBA backs them, there’s no collateral required, interest is 1%, the maturity is five years, et cetera. The maximum second draw PPP loan amount is $2 million.

First draw borrowers can apply for the PPP starting Monday. Second draw hopefuls can apply starting Wednesday. The deadline for both is March 31.

PPP loan forgiveness is ongoing

Once a business has used all of its PPP funding, it can apply for PPP forgiveness, which started in October.

If you’re seeking forgiveness for a PPP loan, you’ll need to contact your lender and ask for the correct form to fill out (it’ll probably be SBA Form 3508, SBA Form 3508EZ or SBA Form 3508S). There’s a simplified application for PPP recipients who received small loans; otherwise, you’ll likely have to submit documentation proving you used the loan for qualified purposes.

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