Your Business Credit

How to get a Paycheck Protection loan in 2021

The recently passed $900 billion stimulus package extends PPP loan funds


Between now and March 31, 2021, qualifying businesses can apply for the second round of PPP loans – even certain businesses who received a PPP loan in 2020.

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Lenders are now taking applications for the second round of Paycheck Protection Program (PPP) loans. If you didn’t apply the first time or did apply and have used up the funds, this could be a good opportunity to pump some much-needed cash into your business.

In case you are not familiar with the PPP, the forgivable loan program was created under the Coronavirus Aid, Relief and Economic Security (CARES) Act. It offers small businesses a forgivable loan to cover eight weeks of payroll, plus another a portion for specified business expenses – provided the company kept its employees on payroll or called them back. The money does not have to be repaid as long as your business can prove it was spent on eligible expenses. The U.S. Small Business Administration has issued a simplified forgiveness application for businesses that received funds during the first round of PPP loan distribution between March to August 2020.

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The PPP was recently renewed under the $900 billion second-round stimulus bill Congress passed on Dec. 21. The law includes $325 billion for aid to small businesses. The law has funding for “first draw” borrowers who had not received a PPP loan before August 8, 2020. The deadline is March 31, 2021.

The law also enables small business owners to get “second draw” funding for businesses that did receive a previous PPP loan, with the same March 31 deadline. To qualify for a second round of funding under the PPP, a business needs to show it experienced a 25% reduction in revenue in one quarter of 2020. Businesses can have up to 300 employees to qualify.

In addition to payroll costs, the loan can be used to cover benefits, mortgage interest, rent, utilities, worker protection costs and uninsured property costs stemming from looting or vandalism in 2020, and certain supplier costs and operating expenses. At least 60% of the money must be spent on payroll costs during the eight- or 24-week covered period.

See related: Coronavirus: What to do if you’re unemployed and have credit card debt

For either draw, there is no collateral or personal guarantee required. The interest rate is 1%, with a five-year maturity. The SBA and Treasury Department updated the rules of the PPP several times since the program passed, and more updates are likely.

The SBA opened its loan portal for PPP applications earlier this month. Following complaints that many of the smallest businesses were not able to apply successfully in the first round, the agency prioritized Community Financial Institutions and microloan intermediaries that work with underserved and minority-owned small businesses.

The majority of borrowers will be able to borrow up to 2.5 times monthly payroll costs for 2019 or 2020, depending on which year’s data they submit. The maximum is $2 million. However, borrowers in the hard-hit accommodation and food services sector can borrow up to 3.5 times their average monthly payroll for that period, with the same maximum.

Many businesses are hurting right now. If yours is, it’s a good time to reach out to your banker and, if you qualify, put in an application. Maintaining a strong cash position will give your business options it won’t have if you run out of cash.

See related: SBA loan forgiven during the pandemic? You’ll be getting a 1099

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