Everything You Need to Know About PPP Loans in 2021

Disclaimer: This article is updated as of January 22, 2021. However, information around the PPP can change quickly, so check back here or on the SBA site for the latest details.

If your business is struggling after nine months of COVID-19-related shutdowns and challenges, help is on the way. Congress recently passed the “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act,” in part to reauthorize the Paycheck Protection Program (PPP) that ended in August 2020. 

The new COVID-19 relief bill has two main purposes: 1) to offer funding to small businesses that didn’t receive a PPP loan the first round and 2) to give certain qualified businesses the chance to get a second PPP loan. 

Once the SBA reopens the program, it will run through March 31, 2021, or until funds run out (whichever comes first). Small businesses may be able to apply for a loan as early as January 15, 2021.

To get prepared for a PPP loan, it’s critical to read up on the latest eligibility requirements and terms so you know where you stand and how to prepare. The following guide outlines everything you need to know about the updates before you apply for PPP loan funding.

What Is The Paycheck Protection Program? 

Issued as part of the CARES Act in March 2020, the PPP gave small businesses and independent contractors loans to cover payroll costs for a period of up to eight weeks. 

The program — which ran from April to August 2020 — initially allotted $349 billion in funding to small businesses, then injected another $320 billion to help satisfy the high demand of applicants. Unlike other SBA loans, PPP loans are designed to be partially or fully forgivable, meaning you won’t have to pay them back as long as you follow certain rules. 

Here are a few key facts about the first round of PPP loans:

• Qualified businesses could receive 2.5 times their average monthly payroll costs up to $10 million
• Business owners could get their loans forgiven if they used at least 60% of the money to cover payroll costs.
• The loans required no collateral or personal guarantees
• The interest rate was just 1%

Though the program helped countless small businesses stay afloat amid COVID-19 shutdowns and restrictions, the Paycheck Protection Program wasn’t a cure-all for the small business economy. Many small businesses were ignored by bank lenders, while others didn’t receive a loan before the PPP closed in August 2020. 

Now, to offset these losses and help a greater number of small businesses recover, Congress is amending a handful of terms and requirements around PPP loans. 

Where Are The PPP Funds Going in 2021? 

Under the new legislation, the SBA is getting over $284 billion in funding for first and second-time PPP loan borrowers. The bill also states that $20 billion will be set aside to provide Economic Injury Disaster Loan (EIDL) grants to businesses in low-income communities. 

Another $15 billion is going toward Shuttered Venue Operator Grants, which give money to independent movie theaters, cultural institutions, and live venues that have been forced to close their doors. Another $12 billion is dedicated to supporting businesses in low-income and minority communities. 

Who’s Eligible to Apply For New PPP Loans? 

The new round of PPP loans will be available to three categories of businesses: 

1. Qualified small businesses that did not receive a PPP loan during the first round of funding
2. Previous PPP loan recipients who need a second loan and meet certain criteria 
3. Previous PPP loan recipients who returned all or part of their original loan and want to apply for additional funding

Every business that applies for a PPP loan needs to have been in operation since at least February 15, 2020 to be eligible. 

First-time PPP borrowers from the following groups are eligible to apply: 

• Small businesses or nonprofit organizations with 500 or fewer employees that qualify for other SBA 7(a) loans.
• Small businesses, 501(c)(19) veteran’s organizations, tribal businesses, and small agricultural cooperatives that meet the SBA’s size standards.
• Sole proprietors, independent contractors, and self-employed people.
• Food services or hospitality businesses (with NAICS codes starting with 72) that have fewer than 300 employees per physical location.

Previous PPP loan recipients who meet the following criteria are eligible to apply:

• Have fewer than 300 employees.
• Have already used or will use the full amount of their first PPP loan.
• Can demonstrate a 25% reduction in gross revenue from any quarter in 2020 compared to the same quarter in 2019.

Previous PPP loan recipients who returned all or part of their loan are also eligible to apply (more on this later). 

What Are The Major Changes to The PPP Loans? 

As with PPP1 loans, PPP2 loans give qualified businesses a loan of up to 2.5 times their average monthly payroll costs, either determined by the calendar year in 2019, 2020, or by the 12 months prior to the date the application is submitted. Hospitality or food service businesses with a NAICS code beginning in 72 may receive up to 3.5 times their average monthly payroll costs. 

However, one of the biggest changes is the maximum loan amount, which is down from $10 million in 2020 to $2 million for second-time loan recipients. Congress has also updated other aspects of the PPP, including the following: 

Expanded Coverage For Loans

Under the original Paycheck Protection Program, business owners could get their loans partially or fully forgiven if they spent their funds on payroll costs, utilities, rent, and mortgage interest payments. 

With PPP2 loans, there will be expanded coverage for expenditures beyond payroll, utilities, rent, and mortgage interest, making it easier to obtain partial or full loan forgiveness. There’s also one notable change to payroll costs, which is the addition of employer-provided group insurance benefits, including group life, disability, vision, or dental insurance. 

Here are the new areas you can allocate PPP loan funds to: 

• Operations Expenditures: Software installments or upgrades, cloud computing, or other human resource or accounting needs. 
• Property Damage Costs: Costs (not covered by insurance) related to property damage from any public disturbances that occurred in 2020. 
• Supplier costs: Any expenditures to a supplier — related to a contract, purchase order, or order for goods — that are essential to your business’s operations at the time the expenditure is made.
• Worker Protection: Personal protective equipment and other costs related to complying with federal health and safety guidelines or state or local guidance related to COVID-19, such as glass sneeze guards or high-efficiency air filters. 

Simplified Loan Forgiveness Application 

Under PPP2, you’re eligible for full loan forgiveness as long as you spend at least 60% of your loan amount on payroll costs. To be eligible for forgiveness, you have to spend the funds over a covered period of your choosing: between eight and 24 weeks after the loan’s origination. 

Another change is that you’re no longer required to deduct your EIDL advance grant money from your PPP loan forgiveness amount, which was a rule during the first round of PPP loans. 

The new legislation also streamlines the forgiveness application for loans of $150,000 or less. To apply for forgiveness if you receive a loan of $150,000 or less, you have to submit a one-page application to your lender that includes: 

• A description of the number of employees you were able to retain as a result of the loan
• The estimated total amount of the loan spent on payroll costs
• The total loan amount

The SBA has to create a simplified application form within 24 days of the bill’s enactment, and won’t require any other materials from business owners unless they’re necessary to verify a business’s revenue loss. 

Tax Deductibility 

Just like with the original PPP loans, you cannot count your PPP loan forgiveness amount as part of your business’s gross income. 

However, the new bill clarifies that any businesses expenses that are paid with a forgiven PPP loan and are otherwise deductible will be tax deductible. Your assets will also not be reduced as a result of the loan forgiveness. This provision applies to PPP1 loans and all PPP loans going forward. 

Applying For The PPP Loan For The First Time: Everything You Need to know 

If you’re applying for a PPP loan for the first time, here’s what you need to know: 

To qualify, your business must have been in operation since at least February 15, 2020. You also have to fit into one of the following groups:

• A small business or nonprofit organization with 500 or fewer employees 
• A small business, 501(c)(19) veteran organization, tribal business, or small agricultural cooperative that meets the SBA’s size standards
• A sole proprietor or independent contractor
• A food services or hospitality business (with NAICS code starting with 72) that has fewer than 300 employees per physical location 

What Are The PPP Loan Terms? 

Your business can receive up to 2.5 times your average monthly payroll costs (for the 12 months preceding the date the loan starts or for the calendar year of 2019 or 2020). The maximum loan amount you can receive is $10 million. 

If you’re a seasonal business, you can count your average monthly payroll costs from any 12-week period of your choosing between February 15, 2019 and February 15, 2020. To be a seasonal business, you must 1) operate for no more than seven months a year and 2) earn no more than ⅓ of your total receipts in any six months in the prior calendar year. 

If your business was operating by February 15, 2020, but hasn’t been operating for a full 12 months yet, you can figure out your average monthly payroll costs by examining payroll from the months you have been operating. 

If you’re self-employed, you can apply for payroll costs based on your net profit for 2020. 

The following costs count as payroll: 

• Salary, wages, commission, or compensation
• Payment of cash tips or equivalent
• Vacation, parental, family, medical, or sick leave 
• Allowance for separation or dismissal
• Employee benefits (employer cost)
• Retirement benefits (employer cost)
• State or local taxes
• Group benefits, including group life, disability, vision, or dental insurance 

The following costs do not count as payroll:

• The compensation of any employee whose primary residence is outside the United States
• The compensation of any individual employee whose annual salary is over $100,000 (the first $100,000 counts as a payroll cost, but anything beyond that cannot be included)

What Are The Loan Forgiveness Requirements?

To qualify for full loan forgiveness, you need to spend no less than 60% of your total loan amount on payroll costs. You can then spend up to 40% of your loan amount on rent, mortgage interest, utilities, and the expanded covered costs, which include: operations expenditures, supplier payments, property damage costs, and worker protection expenses. 

Your covered period — which is when you must spend at least 60% of your funds on payroll — can be between eight and 24 weeks after your loan originates. To be forgiven, you must spend the remainder of your funds before September 30, 2021. 

If you receive a loan of $150,000 or less, you can submit a one-page document to your lender as part of the simplified forgiveness application. However, if you receive more than $150,000, you have to submit the following:

• A document verifying the number of full-time employees on payroll and their pay rates
• Documents verifying payments on covered mortgage obligations, lease obligations, and utility payments
• A document certifying that the materials you submitted are true and that you did in fact use your PPP loan funds to retain employees, make interest payments on a mortgage, pay rent, or cover utilities

Even if you’re eligible for the simplified forgiveness application, it’s still a good idea to hold onto all your relevant receipts, documents, and accounts from this time. You need to have proof you spent your funds correctly in case you get audited. 

Where Can I Apply For A New PPP Loan?

As an SBA-approved PPP lender, Funding Circle will accept PPP loan applications for first-time and second-time PPP loan applicants as soon as the application is available. Sign up for updates here. 

Applying For The PPP Loan For The Second Time: Everything You Need to know 

If you’ve already received a PPP loan, you can still apply for a second one — called a second draw — as long as you meet the following criteria:

• You have fewer than 300 employees.
• You have already used or will use the full amount of your first PPP loan before your second PPP loans funds are disbursed.
• You can demonstrate a 25% reduction in gross receipts from any of the four quarters of 2020 compared to the same quarter in 2019.

You should also be one of the following: a small business, 501(c)(6) nonprofit organization, housing cooperative, veterans’ organization, tribal business, small agricultural cooperative, sole proprietor, independent contractor, or self-employed person. 

There are a couple important caveats that second time borrowers should be aware of: 1) If you received a Shuttered Venue Operator Grant, you won’t be eligible for the second PPP draw and 2) If your business has multiple locations, you can’t employ more than 300 employees per location to be eligible.

If your business wasn’t operating for all of 2019, you may have to adjust the quarters you compare to determine where you had a 25% reduction in gross revenue. 

• If you weren’t in business during Q1 and Q2 of 2019, but were in business during Q3 and Q4, you can compare any quarter in 2020 with either Q3 or Q4 of 2019 to determine where your gross receipts dropped by at least 25%. 
• If you weren’t in business during Q1, Q2, or Q3 of 2019, but were in business during Q4, you can compare any quarter in 2020 with Q4 of 2019 to determine where your gross receipts dropped by at least 25%. 
• If you weren’t in business at all in 2019, but were operating before February 15, 2020, you can compare Q1 of 2020 with either Q2, Q3, or Q4 of 2020 to determine where your gross receipts dropped by at least 25%. 

What Are The Second Draw Loan Terms? 

Similar to your first PPP loan, for the second loan you can receive up to 2.5 times your average monthly payroll costs, which are calculated for the 12 months prior to the loan or for the calendar year of 2019. For second draw loans, the maximum amount you can receive is $2 million. 

The only exception is if your business has a NAICS code beginning in 72. In that case, you could receive up to 3.5 times your average monthly payroll costs, but the maximum loan amount is still capped at $2 million. 

Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019 through February 15, 2020.

What Are The Second Draw Loan Forgiveness Requirements?

You’re eligible for partial and full loan forgiveness with a second PPP loan provided you meet certain qualifications. 

As with a first-time PPP2 borrower, you have to spend no less than 60% of your total loan amount on payroll costs. Up to 40% of your remaining funds can go toward rent, mortgage interest payments, utilities, and other covered costs, including operations expenditures, worker protection expenses, property damage costs, and supplier payments. 

You must spend the funds on your payroll costs during the covered period, which is between eight and 24 weeks from the date of the loan origination. Unlike the first PPP loans, you don’t have to deduct the amount of your EIDL grant from the PPP loan forgiveness amount. 

To be fully forgiven, you have to use the remainder of your PPP loan funds on eligible uses before September 30, 2021. 

If your loan is $150,000 or less, you can use the simplified forgiveness application form. On the other hand, if your loan amount is greater than $150,000, you’ll have to apply for forgiveness the way you did last time. 

Can I Apply For A Second Draw PPP Loan If I Returned Some of My First PPP Loan?

Yes! If you returned all or part of your first PPP loan, you can apply for an amount that’s equal to the difference between the money you kept and the maximum funds available to you. If you didn’t accept the full amount you were approved for, you can request to borrow the full amount your business is eligible for during the second draw. The SBA will be releasing more guidelines around this soon. 

Where Can I Apply For A Second Draw PPP Loan?

If you had a positive experience with your first PPP lender, you may want to ask if they’re participating in the second draw. However, if you had a hard time getting funding or didn’t receive much help throughout the process, it may be time to consider a different lender. 

Large banks were inundated with PPP loan applications during the first round, and many didn’t have the time or bandwidth to respond to everyone who applied. Using an alternative lender may be simpler and faster. 

At Funding Circle, we’re here for small businesses like yours, especially during this confusing, chaotic time. Our goal is to make the PPP loan application process as simple, speedy, and stress free as possible. 

To learn more about how we can help — or to get your application ready — go here. 

Can I request a recalculation of my first draw PPP loan?

No. Funding Circle is not accepting requests for recalculations of first draw loans made before August 8, 2020. However, if you apply for a second draw, we will ensure you receive the maximum loan amount you are eligible for.

Stay Informed And Prepared

The Paycheck Protection Program is back with new eligibility requirements and terms. If you didn’t receive a PPP loan last year, or if you did but still need additional funds to stay afloat, consider applying this round. The program is expected to reopen sometime in early January and run through March 31, 2021 or until funds are exhausted. The SBA should be issuing new guidelines and regulations soon, so make sure you stay up to date on the latest information.

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