“Second Draw” PPP Loan Applications Open as Forgiven Loans Total $100 Billion
Last year, as part of the CARES Act meant to address some of the economic impact caused by the COVID-19 pandemic, the Small Business Administration introduced the Paycheck Protection Program. With this, small businesses could apply for loans that could then be forgiven if certain terms were met. The program proved popular, with initial funding running out in less than two weeks before another round was authorized. Now, thanks to the passage of another stimulus bill late last year, more PPP loans may be available to those who have already exhausted their first round of funds.
While this is the third round of PPP funding, this iteration allows for second draw loans, meaning that businesses who previously received funds can apply again. However, in order to qualify, they’ll need to have used the entirety of their first loan on approved expenses. Additionally, applicants generally must have no more than 300 employees and be able to show a reduction in gross receipts amounting to 25% or more during comparable quarters in 2019 and 2020.
In all, the SBA says it’s setting at least $25 billion aside for these second draw loans, with $15 billion earmarked for lending from community financial institutions. Eligible business owners will be able to apply for these loans until March 31st, 2021. Meanwhile, “first draw” PPP loans are now once again available as of January 11th.
The opening of second draw applications comes as forgiven loans from the first two rounds of PPP funding reach a milestone. According to the SBA, the agency has already forgiven more than 1.1 million loans, amounting to more than $100 billion. Specifically, the SBA says it has approved forgiveness for 85% of the applications it’s received so far, with that approval figure increasing to 88% among borrowers with loans of $50,000 or less.
Commenting on the forgiveness rate observed from the first rounds of PPP, SBA Administrator Jovita Carranza said in a statement, “Today’s news is a key indicator that the PPP is working for all small businesses across our Nation. For any eligible small business continuing to struggle due to the coronavirus pandemic, the Program has re-opened for new and certain existing PPP borrowers, and we encourage you to take advantage of the PPP to keep your workers on payroll, regardless of any local economic restrictions on your operations.” Carranza concluded, “SBA is continuing to work around the clock to forgive existing PPP loans and implement the next phase of this vital Program.”
With the impacts of the COVID-19 pandemic continuing to hurt many small businesses, the release of second draw PPP loans is certainly welcome news. Additionally, while the forgiveness application process has seen a few hiccups along the way, it’s encouraging to hear that the rate of approval seems to be strong. Hopefully this latest round of funding will help in keeping businesses afloat as we await a wider roll-out of a vaccine — and, in turn, a return to normalcy.