As the PPP program enters its final month (the program will end on March 31), business owners are keen to get their applications in and receive funding. There are two types of PPP loans: first and second draw loans. First draw loans are for those who have not received a PPP loan before, while second draw loans, with some stricter requirements, are for those who got a PPP loan previously.
However, some business owners who received a first draw are now wondering if they can apply for second draw loans before funding runs out. So, can you receive two loans in the same round? The short answer is yes, but there are some hoops you have to jump through. Here’s how to apply for a second draw loan after you receive your first.
You Have to Spend or Prove Your Plan to Spend Your First Loan
You can’t apply for a second draw loan until receiving your first draw loan, and either spending it all or creating a plan for how you will spend it and documenting that plan. To qualify for a second draw loan, you will need to spend your entire first draw loan on eligible expenses, such as payroll and utilities. You can learn more about what expenses are eligible in this post. You don’t have to apply for forgiveness on your first loan to put in an application for a second draw loan, however.
You Have to Prove 25% Revenue Reduction
Once you’ve spent your first draw loan or documented your plans to do so, you’ll need to meet the other requirements for second draw loans, which are much stricter than first draw loans. One of these requirements is that you must prove a 25% reduction in revenue for 2020 as compared to 2019. To prove your revenue reduction, compare your gross receipts for one quarter of 2019 to the same quarter of 2020. If the 2020 receipts are 25% lower, you’ll qualify.
This requirement is only for second draw loans, so you won’t have done this for your first draw application. If you’re hoping to apply for a second draw loan before the deadline on March 31, you should gather your revenue receipts now.
You Must Have 300 Employees or Fewer
First draw PPP loans can go to companies with 500 employees or fewer, but second draw loans are only for companies with 300 employees or fewer. However, until March 9, applications for both PPP loan types are limited to companies with 20 or fewer employees. If you are a small business owner with 20 employees or less, now is a great time to apply for a PPP loan because there is less competition for lenders.
Not Every Lender Will Do Two Loans in the Same Round
The SBA has no documented rule against applying for two loans in the same round of funding, but hat doesn’t mean that you will necessarily be able to put in two applications. Not every lender will accept applications for both a first and second draw loan from the same borrower, because it requires them to disburse funds to you very quickly. You should check with your individual lender to determine whether they can help.
Next Steps for PPP Loans
You can keep up with PPP news and updates on the Skip App. Make sure you put on push notifications so you can get the latest information.