Information for First-Draw PPP Applicants

** Updated January 25, 2021 **

With passage of December’s $900B Economic Aid to Hard-Hit Businesses Act, $285B is now available PPP funding.  Among those eligible are businesses that did not receive a PPP in the prior cycle (so-called “First Draw” applicants). The program expires March 31, 2021.  

The SBA’s FIrst Draw PPP website offers an overview of the First Draw program and related links.

PPP Overview: The PPP is a potentially forgivable loan.  If recipients spend the funds received on specified eligible expenses during a period of up to 24 weeks from receipt of funds (the “covered period”), some or all of the PPP will be forgiven, and no interest or repayment will be required.  Amounts not forgiven convert into a 5-year loan at 1% interest (see “PPP loan terms”, below).

Who is Eligible: small businesses, nonprofits, independent contractors and sole proprietors.

  • Must have 500 or fewer employees
  • For companies in NAICS code 72, Food and Beverage, the limit is 500 employees per location

Loan Size: Recipients may receive up to 2.5x average monthly payroll plus any outstanding EIDL balance (excluding EIDL advance).  The maximum PPP loan for any business is $2M.

Refinancing the outstanding EIDL balance is an attractive component of First-draw PPP loans.  The potential advantages include:

  • If spending requirements are met, it may be possible to effectively have some or all of the EIDL forgiven.
  • On amounts not forgiven, the interest rate declines to 1% from the EIDL’s 3.75% (2.75% for nonprofits), albeit on a shorter maturity loan.
  • The PPP requires no interest or principal payments until the forgiveness amount is approved by the SBA (as long as the forgiveness application is submitted within 10 months of the end of the covered period).  This effectively defers payment on the PPP - and, if refinanced, the EIDL - for 16 months or more. 

Average Payroll: Applicants will be asked to supply an average monthly payroll level, with supporting documentation.  

Payroll includes:

  • Salary, wages, commissions, cash tips, plus:

    • Payment for vacation, parental, family, medical, or sick leave (except amounts reimbursed under FFCRA), 
    • Allowance for separation or dismissal
    • Payment for employee benefits (including insurance premiums) consisting of group health care coverage, group life, disability, vision, or dental insurance, and retirement benefits
    • Employer payment of employees’ state and local taxes

  • For independent contractors or sole proprietors: wage, commissions, income or net earnings from self-employment or similar compensation.

Average payroll can be calculated for either 2019 or 2020.  Additionally:

  • Seasonal businesses may elect to use average total monthly payroll for any twelve-week period between February 15, 2019 and February 15, 2020
  • New businesses, can calculate average monthly payroll from January 1 to February 29, 2020

Additional notes:

  • In all cases, payroll excludes payments to individuals above $100,000 on an annualized basis
  • Applicants are encouraged to contact their payroll service provider to determine the payroll and employee documentation available

Application Process: As with the initial round of PPP, borrowers will apply via a participating lender.   Applicants are encouraged to contact their business bank for availability.  However, not all banks are supporting PPP or first-draw applicants.  Other options include:

  • $15B of the Act’s funding is set aside for First Draw borrowers with 10 or fewer employees or for loans of $250,000 or less to eligible borrowers in low- or moderate-income neighborhoods.  Many of these loans are disbursed by local banks, community lenders and community development financial institutions (CDFIs).  This link lists NYC-area CDFIs offering PPP loans
  • The SBA offers a Lender Match tool and Lender Map
  • A number of online lenders allow you to create an application online for submission to authorized PPP lenders as available.  These include: Boefly, Lendio, Nav and Fundbox

Covered Period: forgiveness will be based on the amount of spending on eligible expenses during the covered period.  

  • Recipients are able to designate a covered period of between 8 and 24 weeks
  • The longer period gives the recipient more time to spend the money in ways that increase the amount forgiven.  
  • However, those able to spend the PPP funds on payroll and other eligible expenses in a shorter timeframe may elect a briefer covered period to simplify documentation and expedite the forgiveness process

Eligible Expenses:  PPP funds can be spent on the following.  

  • Payroll
  • Rent or mortgage interest
  • Utilities
  • Supplier Costs: payments to suppliers that are essential to operations
  • Worker Protection Expenditures: operating or capital expenditures made to comply with HHS, OSHA or state requirements or guidance related to COVID-19 
  • Certain Group Insurance Payments: group life, disability, vision and dental insurance benefits
  • Operations Expenditures: software and cloud services to support business operations, product or service delivery, payroll processing, human resources, sales and billing functions or accounting
  • Property Damage Costs: property damage from vandalism or looting due to public disturbances in 2020 not covered by insurance

Important note: Items such as rent, mortgage and supplier payments must be made in accordance with a contract that was in place prior to receipt of the PPP

Forgiveness:  Forgiveness will be based on:

  • Maintenance of headcount and employee compensation levels 
  • Spending on eligible expense during the covered period
  • At least 60% of the amount forgiven must be spent on payroll

For more information on forgiveness terms and the application process, refer to Applying for PPP Loan Forgiveness

PPP Loan Terms: While forgiveness is attractive, PPP recipients should be aware that amounts not forgiven will convert into a loan at generally attractive terms which can be repaid at any point.  PPP loan terms are:

  • Interest rate: 1% annual rate
  • Maturity: 5 years
  • No fees, collateral or personal guarantees
  • Deferral period: no payments are due until the SBA approves the amount to be forgiven.
    • This ensures that applicants will not owe interest on PPP amounts that are ultimately forgiven
    • Applicants have up to 10 months following the end of the covered period to apply for forgiveness

Advice to Recipients: these steps can facilitate payment monitoring, forgiveness application and other aspects of managing the PPP process

  • If possible, receive PPP funds into and pay eligible expenses from a separate account
  • If funds must be paid from another account (for example, payroll costs or automatic payments for rent or utilities), transfer these funds from the PPP account to clarify payment tracking
  • Maintain documentation on payments of all eligible expenses
  • Contact your payroll provider, if you use one, to understand the payroll and employee reporting available to support PPP documentation

For more information, see Tracking PPP Spending and Forgiveness