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Here’s what you need to know about the second round of PPP loans

A long awaited second round of federal Paycheck Protection Program (PPP) loans is being rolled out this week. Applications will first become available through community financial institutions, a subsets of banks and other lenders who meet special criteria, with larger financial institutions soon to follow.

In total, the Small Business Administration is set to give out $284.5 billion in loans to businesses, with $30 billion set aside for applicants using smaller lenders and community financial institutions, such as certified Community Development Financial Institutions (download a current list here), Minority Depository Institutions (download a list here), Certified Development Companies and Microloan Intermediaries.

The application timeline is then broken down by first-time borrowers and businesses applying for additional PPP funds.

For first-time borrowers—called “first draw applicants” in SBA parlance—who apply through community financial institutions, the application window for loans opened on Monday. In total, $35 billion has been set aside for businesses who are first-time recipients.

For businesses who already received a loan through the program last year, but have since used up all the funds—or will have done so by the time the new round of loans is disbursed—the application window opens Wednesday, Jan. 13. These “second draw” applicants will also have to apply through a community financial institution. It is unclear when the application process will be opened up to larger banks.

Farmers & Merchants Bank, the local institution that processed the highest volume of loan applications for the first round of PPP loans last year, will have to wait before it can assist businesses with the loans. But despite the delay for banks like Farmers & Merchants to join the process, Chief Credit Officer Phil Bond said he supports the phasing in of applications this time around.

“The stacked approach is appropriate,” Bond said. As for the opportunity for larger banks to participate, Bond said he is “expecting it to happen fairly quickly.”

After loans to large companies came under scrutiny when the first round of funds were disbursed, only companies with 500 or fewer employees across all locations qualify for an initial loan this time around, with the exception of news organizations and companies in the food and hospitality sector. Companies applying for a second round of funding under the program can have no more than 300 employees and have to show proof of at least 25% in year-over-year revenue loss to be eligible. Independent contractors and sole proprietors also qualify.

Additionally, there are limitations on the amount of money a business can borrow under the program. The specific amount each business is eligible for is calculated based on its payroll expenses, with food and hospitality businesses qualifying for additional funds, but the maximum loan amount for first-time borrowers is set at $10 million.

Just like during the first rendition of the program, 60% of the loan amount have to go toward payroll. But this time around, the categories of eligible expenses for the remaining 40% have been expanded to include worker protections such as personal protective equipment, damages from looting or vandalism that took place in 2020, and professional services like cloud computing.

PPP loans carry an interest rate of 1% and can be fully forgiven—principal and interest—as long as spending requirements are met.

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