RENO, Nev. — Small businesses seeking financial aid to stay afloat amid the coronavirus pandemic are once again able to turn to the Payment Protection Program, which reopened a second round for first- and second-time borrowers in mid-January.
Congress relaunched the program with $284 billion in funding as part of its latest $900 billion COVID-19 stimulus packaged approved in December 2020.
The restart comes as many small businesses continue to struggle from pandemic fallout — one-third of small businesses surveyed between Jan. 4-10 said they would need financial assistance or additional capital in the next six months, according to the U.S. Census Bureau, up from nearly 25% in a similar survey conducted in mid-November.
“There is a lot of economic uncertainty still, so priority No. 1 for every single small business owner should be survival,” said Noe Gonzalez, senior business advisor with Prestamos CDFI in Reno. “And this second round of PPP is basically the lifeline to survive until the economic landscape gets better, so to speak.”
Gonzalez was among several regional financial experts to speak during an online town hall hosted Jan. 20 by the University of Nevada, Reno Extension that focused on the eligibility and application process of the new rounds of PPP.
Who can apply?
Like the first draw of PPP, funds will be in the form of forgivable loans. But there are key changes, such as eligibility for second-time applicants and types of forgivable expenses.
Alfredo Cedeño, outreach and marketing specialist at the Small Business Administration (SBA), said existing borrowers can apply for a second loan. However, they must have 300 or fewer employees and can show they experienced a 25% loss in revenue during a quarter in 2020 compared with the same quarter in 2019.
Moreover, returning borrowers must have exhausted the initial PPP loan or will use it up before the expected date of disbursement of the second loan.
Cedeño also pointed out that first-time PPP borrowers will be subject to the eligibility rules of the original PPP, which was open to businesses with up to 500 employees and had no requirement to show a revenue loss.
The maximum loan amount this time is $2 million, a decrease from the $10 million cap for round one. Second-time PPP borrowers will generally be eligible to borrow an amount equal to 2.5 times their average monthly payroll costs, Cedeño said.
Businesses in the accommodation and food services sector, an industry hit especially hard by the pandemic are eligible for more.
“If you are a restaurant or in accommodation, you can get three and a half times (your average monthly payroll costs),” Cedeño said.
All borrowers, he noted, are still required to spend at least 60% of the funds on payroll to receive full forgiveness. The other 40% may be used on eligible costs, which were expanded this round to give borrowers more flexibility.
Examples of additional forgivable expenses include safety expenditures (such as PPE), certain supplier costs, business operations, and even property damage costs related to protests or public unrest in 2020.
Even business owners who did not have their first PPP loan forgiven can still apply for the second round, said Gabriela Wyett, business banking development consultant at U.S. Bank in Las Vegas.
“I spoke to a couple concerned customers that were told by other banks that if their initial loan was not forgiven, they could not apply for a second,” Wyett said. “That is not correct.”
But, if borrowers have a pending forgiveness application related to their initial PPP loan, they may experience a “little bit of a slower turnaround time” in the application process for the second draw, said Saul Ramos, deputy district director of the SBA.
“The reason why is the SBA is looking to make sure there are no integrity issues,” he explained.
In applying for a loan, Cedeño said the latest law allows borrowers to elect to use payroll documentation from either 2019 or 2020 “for the purpose of calculating the maximum loan amount.”
Second-time borrowers can use quarterly financial documents to demonstrate a 25% drop in revenue, said Wyett. Those applying for loans of $150,000 or less, though, do not have to provide such documentation when applying, but will eventually have to, she said.
When that time comes, Gonzalez said borrowers better be prepared to show that 25% decline in their documents.
“If you cannot show a negative impact of 25% in 2020 compared to 2019, that is going to convert into an actual loan that you need to repay with a 1% interest for five years,” Gonzalez said.
The restarted program is slated to close both first- and second-time applicants on March 31, 2021, noted Ramos.
According to the SBA, borrowers can elect to accrue their forgivable expenses over an 8-week or 24-week period following the date of loan disbursement.
Go here to apply for a PPP loan and view other coronavirus relief options offered through the SBA.