PPP loan applications are now open for small businesses: Everything to know

The Paycheck Protection Program, a vital lifeline that helped keep pandemic-ravaged small businesses afloat, reopened to applicants on Monday with several key changes put in place to eliminate fraud and abuse.

In an attempt to rectify past criticisms that the program favored larger borrowers, the rescue fund – which provides forgivable loans to businesses if they maintain their payroll – will initially only be available to first-time borrowers, with second-time applicants eligible to apply on Wednesday, according to new guidance from the Small Business Administration and the Treasury Department.

The federal government will also give priority to minority-owned businesses in the program's first two days by only accepting loan applications from certain lenders that focus on underserved communities. Although the federal government backs the loans, the money is issued by financial institutions such as banks, credit unions and community lenders. Most lenders that participated in the earlier rounds are expected to do so again.

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“This updated guidance enhances the PPP’s targeted relief to small businesses most impacted by COVID-19,” Treasury Secretary Steven Mnuchin said in a news release. “We are committed to implementing this round of PPP quickly to continue supporting American small businesses and their workers.”

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

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.

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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 surge in COVID-19 cases.

While the eligibility formula is the same for first-time applicants, only businesses with 300 employees or fewer are eligible to receive a second loan, which will be capped at $2 million. Borrowers seeking a second forgivable loan also need to prove that they saw a 25% reduction in gross receipts during a quarter in 2020 compared with the same quarter in 2019.

Second-time borrowers that are taking loans of $150,000 or less will not have to immediately provide documentation proving a 25% reduction in receipts and can do so before they apply for forgiveness, according to the rules.

During the first round, businesses with fewer than 500 employees could receive as much as $10 million.

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Businesses will still be required to spend at least 60% of the money on maintaining payroll in order for the government to forgive the full loan. The remaining 40% can be spent on operating costs such as mortgages, rent and utilities.

At the program's onset, it was heavily criticized for granting aid to publicly traded companies that had other avenues for relief – even as small businesses languished. The SBA and Treasury Department, which jointly administered the program, scrambled to close the loopholes that allowed multimillion-dollar companies to tap the fund, including pledging to audit any loan worth more than $2 million.

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

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