Eleven Common Questions (& Answers) About PPP Round Two
On January 20, David Jerome (President & CEO, El Paso Chamber) sat down with Mara Portillo (Vice President – Compliance, WestStar Bank) and Steve Ortega (Law Office of Steve Ortega) to discuss round two of the Paycheck Protection Program (PPP). After closing to applications in the fall last year, the program reopened on January 11, 2021 to provide additional funding. The deadline for the second round is March 31, 2021.
Businesses who did not qualify in the first round of PPP loans are encouraged to check if they are eligible for the second round, as qualifying criteria has been expanded.
Below, we answer eleven common questions about this latest round of loans. Please note, guidance on the PPP loans is continually evolving. To read the latest updates, please visit the SBA website.
- What is available through the government right now?
The Paycheck Protection Program (PPP) has been reopened to new and returning borrowers alike. Individuals who were not able to receive a PPP loan last year may apply for a “first draw” loan, and those who did receive a PPP loan the previous year may apply for “second draw” loan. For the most part, the program is the same as the one from 2020, though there are a few notable changes.
“If you are a restaurant…in the first round, you could get two and half times your average monthly payroll,” Portillo explained. “For this round, they’ve upped that to three and half times your average monthly payroll.”
For more information on eligibility, visit SBA’s website.
- What does a “first draw loan” mean?
First draw loans are for those who have not previously received funding through a PPP loan. In a first draw loan, 60% of loan proceeds must be used to pay payroll costs. The other 40% can be used to pay additional expenses. Under this economic aid act, the list of eligible expenses has been expanded. Examples of expenses covered include utilities, rent, interest on any debt that is secured, and costs associated with installing health/safety equipment. For a complete list, visit SBA’s website.
- How do I know if I qualify for a first draw loan?
To be eligible for a first draw loan, your business must have no more than 500 employees. Seasonal businesses and certain tax-exempt organizations are also eligible.
“The list is very broad,” Portillo added, encouraging businesses to check whether they are eligible.
However, certain businesses do not qualify, like businesses that received a shuttered venue grant. To review qualifying criteria, visit SBA’s website.
- What does “second draw loan” mean?
“Second draw loans” have most of the same requirements as first draw loans but there are a few key changes. One is that only businesses with 300 employees or less are eligible to apply. Businesses must also have used all of the funds from their first PPP loan before receiving the funds from the second draw PPP loan. Last, businesses must be able to demonstrate a 25% reduction in gross receipts.
“[The 25% reduction in gross receipts] can be quarter to quarter, like comparing Q1 of 2020 to Q1 of 2021, or annually, like comparing 2019 to 2020,” Portillo explains of that last criteria. “It’s very flexible in that it allows you to choose which reference period you would like to use to show that 25% loss in gross receipts. You can also—and this applies to first draw—utilize your 2019 average monthly payroll or 2020 average monthly payroll to calculate your loan amount.”
Applicants do not need to have repaid or forgiven the first draw loan to qualify for a second draw loan; only need to have used them.
- Has the maximum amount of the loan changed?
The maximum amount remains 2.5x your average monthly payroll for this round of PPP loans. The average monthly payroll can be drawn from either 2019 or 2020 data. For restaurants, it is 3.5x the average monthly payroll. However, applicants must be able to demonstrate a 25% reduction in gross receipts.
- Is there still a cap on the payroll?
Yes. Employees must be capped at $100,000.
- My business has been somewhat impacted by the pandemic but not severely. Should I still apply?
“My message is: apply,” says Ortega. “Number one, it’s there. Number two, you don’t know what the future of your business is going to look like. And number three, part of the policy justification of the loan isn’t just sustainability of business. It’s also economic recovery and economic stimulus. So eventually these dollars that are coming into your business are making their way back into the economy through your employees and through your own expenditures.”
- How do I get the loan forgiven?
To apply for loan forgiveness, you must complete an application through the banking institution that processed your loan. Once you have completed the application and have provided documentation to demonstrate that the loan money was used for eligible expenses, the bank will submit your application to the SBA. The SBA then reviews the application and makes a determination on whether the loan can be forgiven.
Contact your financial institution to begin the loan forgiveness application.
- Can I request a higher amount than my current average payroll if I know for sure I will be using at least 60% of that money on payroll and the rest will be used for rent, utilities, PPE improvements, and new hires?
No. Your loan amount is capped at your average monthly payroll times 2.5 or 3.5. You cannot request a larger amount than that.
- What bank should I use?
Applicants can choose to work with their existing banking institution or can work with a new institution. Applicants do not need to have an account with a bank to have their PPP application processed with them. If applicants received a loan during the first round, they can also choose to either use the same bank or a different bank for the second round application. However, applicants must only have one application open at a time.
- Is there anything else I should know about applying?
Ortega emphasized the importance of keeping detailed information about any PPP loans received.
“Applicants should keep excellent records of expenditures, of what’s eligible for potential loan forgiveness,” Ortega explained. “I would encourage everyone to take that very seriously because on the back-end, if you’re eligible for loan forgiveness, you’re going to need that documentation.”
For additional questions related to PPP loans, please contact the El Paso Chamber at 915.534.0500. To watch the full video, visit the El Paso Chamber’s Facebook.