Are You Ready for Round Two?

What Businesses Need to Know about Second Draw PPP Loans

Anna L. Schroeder

man holding envelope of money   Last March, the Coronavirus Aid, Relief and Economic Security (CARES) Act established the first round of Paycheck Protection Program (PPP) funding which supported 5.2 million small businesses by distributing $523 billion in forgivable loans. While the first round ended on August 8, 2020, a second round of $284 billion in funding was approved on December 27, 2020, through the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (CRRSA). When considering whether to apply for a second draw PPP loan, small businesses should be aware of the following basic details:

Application Period 

   The PPP reopened to community financial institutions (CFIs) and lenders with under $1 billion in assets for first draw PPP loan applications on January 11, 2021, and second draw applications on January 13. All other lenders may apply for first or second time loans beginning January 19. The second round of PPP funding will remain open until March 31, 2021.

Eligible Costs

   Second draw PPP loan funding may be used for costs associated with payroll and benefits, mortgage interest, rent, utilities, worker protection costs incurred due to COVID-19, uninsured property damage costs caused by looting or vandalism that occurred in 2020, as well as certain supplier costs and operational expenses. 

Maximum Loan Amount

   Second time borrowers may apply for a maximum loan amount of 2.5 times their average 2019 or 2020 payroll costs for up to $2 million. Borrowers in the “Accommodation and Food Services” sector as defined in the North American Industry Classification System (NAICS) may borrow up to 3.5 times such payroll costs up to $2 million. NAICS provides that the activities of this sector include “providing customers with lodging and/or preparing meals, snacks and beverages for immediate consumption.” 

Eligible Borrowers

   Borrowers that received a first round PPP loan must have used, or will use, the funding for only authorized uses in order to be eligible for a second draw loan. The borrower may have no more than 300 employees and, by comparing similar quarters in 2019 and 2020, must be able to demonstrate a 25% or more reduction in gross receipts.


   The loan forgiveness requirements that applied for the first round of PPP funding apply to the second round as well: employee and compensation levels must be maintained throughout the covered period (8 to 24 weeks), and borrowers must spend at least 60% of the funds on payroll costs with the remaining proceeds going toward other eligible expenses. Existing borrowers that did not receive loan forgiveness by December 27, 2020, may have the option of either reapplying for first draw PPP loans if some or all of their first draw loan funds were returned or, if they did not previously accept their maximum allowed loan amounts, request a modification to the amount of their first loans.

   First draw borrowers can learn more about PPP loan eligibility and forgiveness in our article, The Paycheck Protection Program Under the CARES Act. For assistance in determining whether your business should consider a first or second draw PPP loan, please reach out to Ms. Schroeder or one of our other business attorneys.



   At the date of publication, the above information was correct.  It is quite possible the information above has changed as COVID-19 is a rapidly evolving situation.

   The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.