How to Apply for a Second-Draw PPP Loan: Step-by-Step

The Paycheck Protection Program (PPP) relaunched in December and significant funds remain available for small business owners. Loan applications will remain open until May 31, 2021, but funding may run out before then, so get moving! 

If you’ve already borrowed a PPP loan from the first round, you may be eligible for a second-draw loan. We’ll walk you through the PPP loan application process, step-by-step here. Haven’t borrowed a PPP loan? You’re a first-draw PPP borrower, which means you need to use a different form; find instructions on how to apply here.

Are you eligible for a second-draw PPP loan?

You can get all the details on PPP loan eligibility here, but we’ll give you the short version below. You can get a second-draw PPP if:

• You’ve used or allocated the full amount of your first-draw PPP loan
•  Your business has less than 300 employees (that’s full-time, part-time, or seasonal)
• You can demonstrate that your business has experienced a revenue reduction of at least 25 percent (don’t worry, we’ll walk you through how to calculate and demonstrate this) 

The calculations you’ll need to make for a second-draw PPP loan

Second-draw borrowers have to make two different calculations for this application:

• A calculation to demonstrate a 25 percent reduction in revenue. We’ll walk you through how to do that in this post.
• A calculation to determine the loan maximum amount. We walk you through how to do that in this PPP loan calculation post.

Documentation to gather for your PPP application

Documentation needed changes a bit from lender to lender, but generally, here are the documents you should gather:

1. Copies of all business owner photo IDs: Get this for anyone who owns at least 20 percent of the business 
2. Payroll reports: If your loan is under $150,000 and you are using the same lender you used for your first-draw loan, you don’t need to provide these. (Gusto customer can access these by signing into your account to download your Payroll Protection Program report.)
3. Accounting information: Don’t have access to your payroll reports? The next best option is to use your accounting software to compile the payroll cost information. 
4. Documents to demonstrate revenue reduction: We’ll get into this in detail below, but second-draw loan borrowers must demonstrate a 25 percent revenue reduction.  
5. Tax forms: While each bank or lender will have its own process, tax documents likely to be requested are:
   1. IRS Form 940
   2. IRS Form 941
   3. IRS Form 944
   4. IRS Form W-3
   5. IRS Form 1099 (if relevant) 
   6. IRS Form 1040, Schedule C (if relevant)

Filling out the PPP second-draw loan application

There are two version of the second-draw loan applications:

• Second-draw PPP borrowers who don’t file Form 1040 Schedule C should use this form.
• Second-draw PPP borrowers who file Form 1040 Schedule C and elect to use gross income for their loan maximum calculation should use this form.

We’ll walk you through both. Let’s start with those who do not file Form 1040, Schedule C.

Your business information

We’ll start nice and easy; here, you just need to fill out the basics.

Check your entity type, enter your business name and address, DBA name, and the year your business was established. Then, fill in your NAICS code. If you don’t know what this is, use the NAICS lookup tool. Enter your industry type in the field on the left that is marked 2017 NAISC Search.

Then, enter your TIN (this will be your EIN or your social), and your contact information. If you are a non-citizen, lawful U.S. resident, enter your ITIN here.

Finally, chose the primary contact (probably you), and fill in your business phone number and business email.

How to calculate your monthly payroll and your PPP loan amount

Here is where the application gets interesting. In order to determine your loan amount, you must calculate your payroll costs (which include employee wages, PTO, group healthcare benefits, retirement benefits, state and local taxes). For most businesses, your loan amount will be 2.5 times your monthly payroll costs (up to $2 million), but if your business is classified under code 72 in NAICS, you may be eligible for up to 3.5 times your monthly payroll amount. 

Calculating payroll and your loan amount can get complicated, so we put together a step-by-step guide on calculating your payroll costs and your PPP loan amount as well as a PPP Loan Calculator tool that does all the work for you. See that post to get this part of the application done.  

Find and fill in your PPP first-draw SBA loan number

Unfortunately, there is no central database where you can look up your first-draw SBA loan number (keep in mind: the SBA Customer ID Number is not the same thing as your PPP first-draw SBA loan number).

If you don’t know your first-draw SBA loan number, contact your lender who will have it. 

Filling in the section on the 25 percent revenue reduction

As mentioned above, in order to qualify for a second-draw loan, your business must have experienced a loss of 25 percent in revenue. You must know how to calculate this, use gross receipts to make the calculation, choose an eligible time period, and provide proper documentation to certify the revenue loss. Let’s dive into each step!

Gross receipts 

You must make the 25 percent revenue reduction calculation using “gross receipts.” The SBA has clarified the definition of gross receipts for this purpose. 

For-profit businesses can count gross receipts as “all revenue in whatever form received or accrued (in accordance with the entity’s accounting method, i.e., accrual or cash) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances but excluding net capital gains and losses.”

For 501(c) organizations (including non-profits and veterans organizations) gross receipts are “the gross amount received by the organization during its annual accounting period from all sources without reduction for any costs or expenses . . .” Gross receipts include contributions, gifts and grants, membership dues or fees, gross sales, and investment income. 

Time frames for the calculation

Any that business that operated all four quarters of 2019 can use one of two times frames to calculate revenue: quarterly or annual.  

For quarterly, you’ll compare your revenue from any quarter in 2020 to the same quarter in 2019. Keep in mind that you must compare the same quarter. You can’t, for example, compare the second quarter of 2020 to the third quarter of 2019. 

The process to calculate your annual revenue reduction is the same: simply divide your total 2020 gross revenue by your total 2019 gross revenue.

You can choose the time frame that’s most beneficial for you. For example, if your total annual revenue reduction in 2020 is 20%, but in the second quarter of 2020 you had a 40% reduction, then you can use the second quarter’s revenue reduction to qualify for a second draw loan. Got it?

Businesses that were not operating within the first two quarters of 2019, but were operating during Q3 and Q4 of 2019 may choose any quarter in 2020 and show that gross receipts of that quarter are at least 25 percent less than either the third or fourth quarters of 2019.

Businesses that were only in business during Q4 of 2019 must show that any quarter of 2020 yielded 25 percent less revenue than the fourth quarter of 2019

Any business that did not operate in 2019, but was in business by February 15, 2020 must demonstrate that gross receipts in one of these: Q2, Q3, or Q4 were at least 25 percent less than in Q1. 

How to make your calculation 

To see if your revenue was reduced by at least 25%, you’ll subtract 2019 earnings from 2020 earnings (either quarterly or annual). Then divide that number by 2019 earnings. Multiply by 100, and that’s the revenue reduction percentage. 

The formula is:

2019 earnings – 2020 earnings / 2019 earnings x 100 = revenue reduction

What documents to use to certify the 25 percent reduction in revenue? 

You’ve made the calculations, but now you need to certify to the government that these calculations are accurate. If your loan is over $150,000 you will need to provide these with the application form. For loans under $150,000 you will need to provide these when you are seeking loan forgiveness. 

Use one of these sets of documents to certify the reduction: 

• Quarterly financial statements; if these statements have not been audited, you attest that they are accurate by signing and dating the first page and initialing all other pages. Make sure you identify the line items that are gross receipts. 

• Bank statements that demonstrate deposits from the relevant quarters or years. Make sure you identify which deposits are the gross receipts (as opposed to capital infusions which would not count). 

• If using an annual timeframe to make your revenue reduction calculation, you may use an annual IRS income tax filing. Haven’t filed a 2020 tax return yet? Fill out the tax return forms and make sure to sign and date them. 

Listing business owners

You finished the hard part! It’s all gravy from here. Simply fill out the ownership table by listing each owner (either an individual or parent company) who holds 20% or more equity in the business. 

If you are a nonprofit and don’t have an owner with percentages of ownership, you’ll likely be asked to provide information on your authorized signatories. This can be a single control person such as the president, CEO, or director—whoever has signatory authority.

And just a few questions

A brief questionnaire follows that, depending on your answers, may result in your loan not being approved or require you to provide more information.

Certifications, authorizations, and signature 

Pages 2 and 3 of the application lists the certifications and authorizations that you must make as a PPP loan applicant. Basically, it requires that you attest you will follow the PPP rules and regulations. 

Then, make sure you sign and date the form and you’re done! That’s it! You’ve made it through the PPP application.

How Form 1040, Schedule C filers should fill out the PPP second-draw loan application

If you are a sole proprietor, an independent contractor, or a self-employed individual (with or without employees), you may file Form 1040, Schedule C with the IRS. If you do, this means you have some options.

Any small business that files this form may elect to make the loan calculation using gross income or net profit. Making this decision and figuring out how to make the calculation takes a few steps, but we’re ready to walk you through it. See step-by-step instructions on how to make the best choices for your business and calculate your loan amount as a Schedule C filer.

If you choose to use gross income to make your calculation, you must use this version of the PPP application form.

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This post was originally published on January 29, 2021.