What Does the New Paycheck Protection Program (PPP) Mean for Small Businesses?

With the New Year upon us – and after months of stalling – Congress has finally managed to pass a new $900 billion COVID relief bill that includes roughly $284 billion in the form of a new Paycheck Protection Program.

The bill has already been signed into law by President Trump, so you may be wondering what you need to know to be prepared for the new PPP as lenders prepare to accept applications.

Find the main points that small business owners should know about the new PPP, below. 

What are ‘second draw’ loans under the new PPP?

The new PPP allows businesses that received a PPP loan (profit and non-profit) to potentially receive a second draw loan. Second draw loan amounts max out at $2 million. In order to qualify for a second draw loan, businesses must:

• Have used all of their first PPP loan amount,
• Have fewer than 300 employees, and
• Show that they suffered a 25% loss in gross receipts in a specific quarter of 2020 compared to the same quarter in 2019

 An important note is that – for the time being – only one second draw loan will be permitted per business. 

What can funds be used for under the new PPP rules?

Under the original PPP rules, businesses were permitted to use loan proceeds for the following purposes:

• Rent/mortgage
• Utilities
• Payroll costs

 Those eligible expense rules have expanded for the new PPP to include:

• Insurance benefits such as dental and disability insurance (which now qualify as ‘payroll costs’)
• Operations expenditures
• Property damage
• Supplier costs
• Worker protection expenditures 

Which businesses are eligible for new PPP loans?

In order to be considered eligible under the original PPP, businesses had to meet the following criteria:

• Meet the SBA definition of a ‘small business’, be a nonprofit, veterans organization, Tribal business concern, sole proprietorship, or be a self-employed individual or independent contractor
• Prove that they were affected by the coronavirus pandemic
• Have fewer than 500 employees
• Have been active prior to February 15, 2020 

In order to be considered eligible under the new PPP, the above criteria have been expanded to include “housing cooperatives, destination marketing organizations, certain 501(c)(6) organizations and certain individual stations, newspapers, and public broadcasting organizations”.

Note: Publicly traded companies and businesses that have received a shuttered venue operator grant are not eligible under the new PPP rules. 

What documents do I need to provide to apply for a new PPP loan?

When applying for a loan under the new PPP, you’ll need to provide the following basic documents*:

For employers

• IRS Form 941 for Q1 of 2019 and 2020
• IRS Form 944 for 2019
• Payroll data (showing expenses & taxes) for the past 12 months
• 12 months of business bank account statements
• Color copy of driver’s license (front & back)

For independent contractors

• IRS Form 1040 Schedule C
• 1099s through which you were paid
• Income and expense reports for 2019
• 12 months of business bank account statements
• Color copy of driver’s license (front & back