How to get 2nd PPP loan for small-businesses pandemic relief

The Small Business Administration will reopen the Paycheck Protection Program to small lenders on January 15 in an effort to reach entrepreneurs in underserved and minority-led companies, the agency announced yesterday.

Small lenders must have $1 billion or less in assets and can include community banks, credit unions, and farm credit institutions, according to the SBA. All other eligible lenders can access the PPP portal on January 19.

Applications are already open at certain lenders, including community development financial institutions (searchable database here) and minority depository institutions (list here). Repeat applications at community lenders opened on January 13.

Experts say the guidance around PPP loans is clearer this time around, as legislators have worked out many of the kinks of the CARES Act. But with new eligibility and forgiveness requirements added, the language is more complex, so both lenders and borrowers will need to be diligent in understanding how it applies to their businesses.

“The SBA has learned quite a bit since the first round and should bring more clarity to the process this time,” Greg Ott, CEO of Nav, told Business Insider by email. “A larger group of participating lenders in round two will also be beneficial for a smoother rollout.”

While the stimulus package will save some businesses, it’s arriving too late for others. Nearly 100,000 businesses have permanently closed since the start of the pandemic, according to Yelp’s “Local Economic Impact Report” published in September.

“A lot of small businesses have shuttered and this loan isn’t going to reopen them,” said Henrietta Treyz, the director of economic policy at investment research firm Veda Partners.

Here’s what small-business owners need to know.

Changes to eligibility

The new stimulus package includes several changes in eligibility for the PPP loan program. For starters, eligible entities now include businesses, some nonprofit organizations, veterans’ organizations, tribal businesses, housing cooperatives, self-employed individuals, sole proprietors, independent contractors, news organizations and small agricultural cooperatives.

“This eligibility approach is much more targeted at small businesses compared to round one — which saw many large public companies participate. Hopefully this means more smaller businesses who are in dire need will get the money they need to survive,” Ott said.

Nonprofit organizations that wish to apply for a second PPP loan must have 300 employees or fewer and cannot be professional sports leagues or organizations that promote or participate in political activities. What’s more, the new package includes rules on organizations that participate in lobbying activities or receive receipts from lobbying.

Businesses or organizations that were not yet open on February 15 and publicly traded companies are not eligible to apply for a PPP loan.

Existing PPP borrowers can apply for the PPP second draw as long as they have 300 or fewer employees and can demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same period in 2019. There are alternative calculations for seasonal businesses and businesses started after 2019.

The original PPP stipulated eligible entities could have up to 500 employees and there was no requirement to show losses, meaning that in this new round lawmakers are aiming to help small or micro businesses along with companies hardest hit by the pandemic.

Most borrowers can receive up to 2.5 times their average monthly payroll costs but those in the accommodation or food services sector can receive up to 3.5 times that amount. But loans cannot be greater than $2 million.

Read more: How restaurant owners can cash in on PPP loans and get up to 3.5 times their monthly payroll

Special provisions for the service industries

The bill also includes $15 billion in aid for live-music venues and cultural institutions, which have suffered greatly as a result of the pandemic. Additionally, as noted above, businesses in the food services or accommodation industries can borrow larger loans. The new round of PPP allows relevant companies to receive up to 3.5 times their average monthly payroll costs instead of the typical 2.5 times.

Read more: How live music venues, theaters, and talent managers can get up to $10 million of $15 billion covid relief grants — with no requirement to pay it back

“There is an inordinate amount of focus on the service sector that got devastated and won’t be back until there’s a vaccine,” Treyz said.

What’s more, Senate Republicans included an obscure tax policy: “Business deductions” for restaurants. The policy allows taxpayers to deduct 100% of the cost of business meals from restaurants through the end of the year, a 50% increase from the current law.

While the tax break can be seen as another way to support the restaurant industry by incentivizing patrons, it’s commonly used by corporate executives and dubbed the “three-martini-lunch deduction,” according to Robert Greenstein, the founder and president of the Center on Budget and Policy Priorities.

Lastly, $10 billion in funding will go to the childcare providers. The majority of the money will go to the Child Care & Development Block Grant (CCDBG), an act that provides federal funding to states for childcare subsidies for low-income families with children under the age of 13.

Relevant businesses can use this funding to make payroll, purchase sanitization supplies, or cover fixed costs like rent.

Prioritizing underserved entrepreneurs

Some of the specifications of the new stimulus bill reflect pain points from the first two rounds of aid that arrived earlier this year. For example, women- and minority-led businesses didn’t receive as much aid as other businesses. What’s more, smaller businesses lacking established relationships with banks and borrowers located in low-income communities struggled to secure funding in the initial phases.

To rectify that, the new package allocates $40 billion of the PPP funding to go to businesses with 10 or fewer employees, as well as those located in low- to moderate-income neighborhoods, capped at $250,000 per business entity. According to SBA guidelines, at least 25% of these set asides will go to either group. 

Of the PPP funding meant for these groups, $15 billion will be accessible through community financial institutions and another $15 billion through insured depository institutions, credit unions, and farm credit system institutions. These lenders should channel PPP loans to minority-led businesses along with companies that may not have relationships with traditional lenders.

Read more: 3 ways to access the $117 billion in stimulus funding for minority businesses and those with 10 or fewer employees

To further ensure aid gets to minority, underserved, veteran, and women-owned business owners, the SBA will only accept applications from community financial institutions for at least the first two days when the PPP loan portal re-opens. 

Another $20 billion in Economic Injury Disaster Loan (EIDL) advances is allocated for struggling businesses in low-income communities. The EIDL advance grants will be limited to $10,000.

More flexibility on how you spend the money and what gets forgiven

This time around, businesses that want their PPP loan forgiven have more options for using the money. Borrowers are still required to spend at least 60% of funds on payroll to be eligible for full forgiveness, while the remaining 40% may be used on permitted expenses like rent, utility payments, personal protective equipment, and property damage that may have occurred during public unrest in 2020.

“This is important for small-business owners,” Ott said, “because that means they can use the money for critical operations costs to stay afloat.”

Though the original CARES Act allowed businesses to use PPP funds to their discretion, forgiveness hinged solely on using the money toward payroll, rent, or utilities. Otherwise the loan would enter into repayment at the end of its term.

Tax breaks and credits

The new bill expands several critical incentives for US small businesses, according to Dean Zerbe, the national managing director at Alliantgroup and a former senior counsel to the US Senate Finance Committee.

One of the biggest changes was to the employee retention and rehiring credit, which incentivizes companies to keep people on payroll, increasing the credit from 50% of wages to 70%. Instead of a maximum credit of $10,000 per employee per year, a maximum $10,000 credit per employee is available per quarter.

“They’ve got another round of checks in the air, but at the core there’s nothing like keeping someone on payroll,” Zerbe said.

Other tax provisions include making the 179D credit permanent, which incentivizes green building initiatives in architecture, engineering, and construction, allowing PPP recipients to receive the research-and-development credit instead of having to choose one over the other, and incentivizing businesses to hire people with employment barriers such as veterans, welfare recipients, and the formerly incarcerated, for the work opportunity tax credit.

Business owners will not be taxed on PPP funds and EIDL grants received, and they may deduct eligible expenses paid for with these funds. “This means business owners will avoid a bigger tax bill and ultimately retain more of the value from stimulus funds,” Ott said.

The bill retroactively eliminates the requirement for businesses to deduct their EIDL grant from their total PPP forgiveness, which may reduce their tax bill while holding onto more of the stimulus funds.

What’s more, the stimulus package will roll over, or make permanent, certain temporary tax breaks. For example, an excise tax break for distillers, beer brewers, and wine makers will be made permanent, Treyz said.

Since this tax is based on how much liquor is produced, the tax break benefits smaller distilleries that produce far less than large-scale companies.