Paycheck Protection Program Reopens Tuesday for Second Round of Small Business Loans

The paycheck protection program, a vital lifeline that has helped keep small businesses ravaged by the pandemic afloat, was fully reopened to all participating lenders on Tuesday after initially limiting who qualifies.

In an attempt to rectify past criticisms that the program favored large borrowers, the bailout fund – which provides forgivable loans to businesses if they maintain their payrolls – was initially available only to new borrowers, according to de new guidelines from the Small Business Administration. and the Department of the Treasury.

The federal government has also prioritized minority-owned businesses during the first two days of the program by only accepting loan applications from select lenders focused on underserved communities. Although the federal government supports the loans, the money is issued by financial institutions such as banks, credit unions and community lenders. Most lenders who have participated in previous rounds are expected to do so again.

Congress established the rescue fund earlier this year with the passage of the CARES Act at the end of March. Lawmakers authorized an additional $ 284 billion last month to provide a second round of small business forgivable loans as part of its more comprehensive $ 900 billion COVID relief plan, bringing the total value of the program’s funding to $ 806 billion.

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At least $ 40 billion has been set aside for businesses with 10 or fewer employees and for loans under $ 250,000 in low-income areas.

The relaunched program is expected to inject much-needed relief into the U.S. economy after employers unexpectedly cut 140,000 jobs in December amid a nationwide spike in COVID-19 cases.

While the eligibility formula is the same for new applicants, only businesses with 300 or fewer employees are eligible for a second loan, which will be capped at $ 2 million. Borrowers looking for a second forgivable loan must also prove that they have seen a 25% reduction in gross receipts in one quarter in 2020 compared to the same quarter in 2019.

Second-time borrowers who take out loans of $ 150,000 or less will not be required to immediately provide documentation proving a 25% reduction in receipts and may do so prior to requesting the forgiveness as per the rules.

In the first round, companies with fewer than 500 employees could receive up to $ 10 million.

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Companies will still have to spend at least 60% of the money to maintain the payroll so that the government cancels the loan in full. The remaining 40% can be spent on operating costs such as mortgages, rent and utilities.

At the start of the program, he was heavily criticized for giving aid to publicly traded companies that had other means of relieving – even if small businesses languished. The SBA and the Treasury Department, which jointly administered the program, worked to close the loopholes that allowed multi-million dollar companies to tap into the fund, including committing to audit any loans worth greater than $ 2 million.

Over the course of about four months, the PPP distributed about $ 525 billion in forgivable loans to 5.2 million businesses, saving about 50 million jobs, according to the SBA. The program closed its doors to new applicants at the end of July, with about $ 38 billion remaining in the fund.

The program is expected to close to all borrowers on March 31.

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