The Consolidated Appropriations Act (CAA), 2021, signed into law Dec. 27, 2020, marks the third round of funding for the Paycheck Protection Program (PPP) which last ran out of funds Aug. 8, 2020.

If you were unable to secure a PPP loan during the first two rounds, new CAA funding of $284 billion are now available. The new funds come with relaxed guidelines that make it easier for small businesses to obtain an original PPP loan and even allow those who received funding in Round 1 or Round 2, to secure a second draw (additional) loan this time around.

January 11, 2021

Starting date for new round of PPP loans from community financial institutions under the Consolidated Appropriations Act (CAA), 2021.

Phased Reopening of PPP Loan Program

The U.S. Small Business Administration (SBA) and Treasury Department have announced that the Paycheck Protection Program (PPP) will re-open the week of January 11, 2021, for new borrowers and existing PPP loan recipients.

Key Takeaways

  • A new round of COVID-19 relief legislation provides $284 billion in additional PPP loan funds for small businesses.
  • The legislation mandates that $35 billion of that money will go to first-time (first draw) borrowers with 500 or fewer employees.
  • An additional $15 billion will provide first draw loans for small businesses with 10 or fewer employees.
  • Guidance for this round of funding was released Jan. 6, 2021 by the Small Business Administration (SBA).
  • Funding will be available until March 31, 2021—or until all funds in this round are depleted.

Initially, only community financial institutions, including community development financial institutions (CDFIs), minority depository institutions (MDIs), certified development companies and microloan intermediaries will be able to make first draw PPP loans beginning Monday January 11. Second-draw PPP loans will be available through the same lenders starting Wednesday, January 13.

All participating PPP lenders will be able to make loans shortly thereafter, according to SBA and the Treasury. Guidance in the form of Interim Final Rules (IFRs) for both first and second draw PPP loans was released Jan. 6, 2021.  

Short History of PPP Funding

The Paycheck Protection Program (PPP) loan program was created by the CARES Act with $349 billion in funding. Those funds, which were expected to last until the end of June, 2020, ran out April 16.

With some tweaks to the allocation process to provide more money to struggling small businesses, the second round of $320 billion lasted until Aug. 8, 2020, after which new PPP loan applications were no longer accepted until now.

The $284 billion allocated in Round 3 will be made available through March 31, 2021, or until funds are expended. This funding round expands on the original PPP goals and guidelines even more than Round 2 did. The table below shows PPP funding to date.

Round Legislation Funding Expiration
1 CARES Act $349 billion Apr. 16, 2020
2 PPP & Healthcare Enhancement Act $310 billion Aug. 8, 2020
3 Consolidated Appropriations Act, 2021 $284 billion Mar. 31, 2021*
  * Or until funds are expended    

Sources: H.R. 748, H.R. 266, H.R. 133

Round 3 PPP funding contained in the CAA, includes significant changes to the Paycheck Protection Program Flexibility Act of 2020, which also made significant changes to the original Paycheck Protection Program that was part of the CARES Act.

The new legislation, for example, expands permissible uses of PPP funds beyond payroll, covered utilities, and covered rent. It provides flexibility in choosing the covered period for your loan (8 to 24 weeks), and simplifies the forgiveness process for loans of $150,000 or less.

Set-Asides for Minority/Underserved Businesses

The SBA said it planned to ensure increased access for minority, underserved, veteran, and women-owned business concerns as follows:

  • $15 billion in first- and second-draw loans through community financial institutions;
  • $15 billion in firs-t and second-draw loans through insured depository institutions, credit unions, and Farm Credit System institutions with assets of less than $10 billion;
  • $35 billion in first-draw loans; and
  • $15 billion and $25 billion for first- and second-draw PPP loans, respectively, for borrowers with a maximum of 10 employees or for loans of less than $250,000 to borrowers in low or moderate-income neighborhoods.

First-Draw Borrower vs. Second-Draw Borrower

One of the main differences with Round 3 PPP funding is the ability to obtain a second loan if you already received one in a previous round and need additional funding. Otherwise, the path you follow will be very similar to that of previous loan applicants.

First-draw borrower

If this will be your first attempt to secure a PPP loan (or you tried in the past and were turned down), you can apply for a first-draw loan that is the lessor of $10 million or 2.5 times your average monthly payroll costs for calendar year 2019, 2020, or the precise one-year period before your first-draw loan is made.

To qualify you must be a:

  • Small business with 500 or fewer employees otherwise eligible for other SBA 7(a) loans;
  • Business categorized under "Accommodation or Food Services," such as restaurants and hotels, with 500 or fewer employees per location;
  • Non-profit 501c (c) (3), 501(c) (19) tax-exempt veterans organization, or a Tribal business with 500 or fewer employees;
  • Self-employed worker, independent contractor, gig worker, or sole proprietor;
  • Housing cooperative, an eligible section 501(c)(6) organization, or an eligible destination marketing organization with no more than 300 employees; or
  • News organization that is majority owned or controlled by a NAICS code 511110 or 5151 business or a nonprofit public broadcasting entity with a trade or business under NAICS 511110 or 5151, that employs no more than 500 employees.

Your organization or business must also have been in operation on Feb. 15, 2020.

Second-draw borrower

If you already received a first-draw loan, you can apply for a second-draw loan of the lesser of $2 million or 2.5 times your average monthly payroll costs for calendar year 2019, 2020, or the precise one-year period before your first-draw loan was made. Restaurants and hotels can receive up to 3.5 times average monthly payroll costs.

To be eligible you must:

  • Have received a PPP loan and used the funds (or plan to before distribution of your second-draw loan); and
  • Certify that you have or will spend the full amount of your first-draw loan on eligible expenses; and
  • Have experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019.

Newly Eligible Entities

It's worth noting that several new types of businesses and organizations are eligible for first-time PPP loans. If your business or organization fits into any of these classifications, you may wish to consider applying for a loan in Round 3.

  • 501(c) (6) nonprofit organizations to include business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues.
  • Shuttered venues including live venues, theaters, independent movie theaters, performing-arts organizations, museums, and talent representatives.
  • Certain small news organizations, destination marketing organizations, and housing cooperatives.

Ineligible Entities

Some businesses and organizations are not eligible for a PPP loan. They generally fall into one of these classifications.

  • Businesses whose primary activity involves lobbying.
  • Businesses with 20% or more ownership by China.
  • Businesses with a board member who is a resident of China.
  • Entities with a shuttered venue operator grant under Section 24 of the new law.
  • Publicly traded companies.
  • Businesses not normally eligible by SBA guidelines unless specifically allowed by the new law.

Application Process for First-Draw PPP Loans

As noted above, applications for first-draw PPP loans will be accepted by community financial institutions only starting Mon. Jan. 11, 2021.

There are two things you need to do:

  1. Download and complete the 5-page first-draw loan application form from the SBA website; and
  2. Contact an approved community financial institution lender and apply.

Keep in mind that first-draw PPP loans will be available only from community financial institutions starting Jan. 11 and through all participating PPP lenders "shortly thereafter." To date, the SBA has not announced a timeline for full lender access.

Application Process for Second-Draw PPP Loans

Second-draw loan applications will be accepted by by the same community financial institutions listed above starting Wed. Jan. 13, 2021.

The process for a second-draw loan is similar to that for a first draw loan:

  1. Download and complete the 6-page second-draw loan application from the SBA website; and
  2. Contact an approved community financial institutions lender and apply.

If you need help locating an approved lender, the SBA provides an online Lender Match tool or you can check the PPP Lender List, organized by state.

Gather Payroll and Other Records

Whether you apply for a first- or second-draw loan you will need payroll and other records in order to complete the application: 

  • Pertinent tax returns (2019 and 2020)
  • Payroll records to help verify the amount you are requesting
  • Documentation showing the legal structure of your company
  • Some demonstration of how COVID-19 has impacted your business

Apply as Soon as Possible

Although the legislation calls for Round 3 PPP loan applications to be accepted through March 31, 2021, past experience suggests actual availability of funds could be much shorter. Recall that the first round of funding only lasted two weeks.

Be prepared, check the SBA website daily if you can't apply in the first wave (Jan. 11 or Jan. 13).