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PPP Second-Draw Loans: Lender Guidance For How Borrowers Apply

Mary Ellen Biery
January 7, 2021
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Who can apply for PPP second-draw loans and other info

SBA lender guidance outlines second-draw PPP eligibility and requirement to show 25% reduction in gross receipts.

You might also like this infographic on PPP second-draw loan eligibility.


This article was updated to incorporate new information released since original publication. Lenders and borrowers should always consult the most recent SBA guidance.

Understand rules

PPP borrowers: begin to get ready to apply now

Paycheck Protection Program (PPP) borrowers can take steps now to prepare to apply for the next round of PPP loans – a round that allows the option for a “second-draw” loan for some small businesses. The Small Business Administration was set to open its PPP portal for second-draw loans Jan. 13 for Community Development Financial Institutions (CDFIs), Minority Depository Institutions, Certified Development Corporations, and Microloan Intermediaries. It hadn't yet announced when all other lenders would be able to access the portal for first or second-draw loans available under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, or the Economic Aid Act. However, one published report indicated it could be as soon as Friday.

In the meantime, being prepared to help borrowers apply for a second-draw PPP loan starts with understanding the eligibility requirements. Borrowers and lenders should review the federal guidance, which was issued Jan. 6, on their own, but below are some of the details from it.

Who qualifies

Businesses eligible for second-draw PPP loans

The so-called “second-draw” loans are separate PPP loans available to certain borrowers that previously received a PPP loan. Borrowers don’t have to have had the first PPP loan forgiven to apply for or receive the second-draw loan. However, borrowers must have spent the entire amount of the first loan (including any increases approved to first-draw loans) on authorized uses by the expected disbursement of the second-draw loan to be eligible for the second loan.

What types of businesses are eligible for a second-draw loan?

  • small businesses

  • self-employed individuals
  • sole proprietors
  • independent contractors
  • small agricultural cooperatives
  • nonprofits, including churches

Unity Bank partnered with Abrigo, maximizing the PPP impact. Learn more.  

What other requirements must borrowers meet for a second PPP loan?

  • 300 or fewer
    The borrower must have 300 or fewer employees (with a few exceptions for businesses in the accommodation and food services industries – NAICS 72, and certain eligible news organizations)
  • 2/15/20
    The entity must have been in business on Feb. 15, 2020
  • 25% revenue drop
    PPP second-draw borrowers must demonstrate at least a 25% reduction in gross receipts. (see our PPP Second-Draw infographic for more information.). Borrowers of $150,000 or less don’t have to provide documentation of this when they apply, but they must either provide it during the application, during the forgiveness application, or on SBA’s request. Relevant tax forms, quarterly financial statements, or bank statements are acceptable documentation.
March 31 deadline

PPP second-draw loan terms, eligible amounts

Second-draw loans will have the same terms (1% interest rate and 5-year terms) as loans approved under the previous round of the PPP.

The deadline to apply for some of the more than $280 billion in new PPP funding is March 31.

The maximum amount available for a second-draw loan is $2 million, but for most businesses, the maximum amount will be calculated by multiplying the average total monthly payroll costs during 2019 or 2020 (at the borrower’s election) by 2.5 (or 3.5 for NAICS 72 businesses).

Self-employed borrowers without employees would use net profit in 2019 or 2020, as reported on IRS Form 1040 Schedule C (capped at $100,000) divided by 12, then multiplied by 2.5 (3.5 for NAICS 72). If self-employed with workers, borrowers would multiply 2.5 (or 3.5 if NAICS 72) by the sum of a) net profit from the Schedule C divided by 12 and b) average total monthly payment for employee payroll costs incurred or paid by the borrower during the same year elected for net profit.

Amounts of forgiven first-draw loans don’t count toward gross receipts, which are otherwise defined in the SBA guidance as follows:

Gross receipts includes all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered “total income” (or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms. Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.


Forms, applications, guidance, and other information about applying for second-draw loans are available on the SBA website or on Abrigo's PPP Resource page.

SBA staff and advisors with Small Business Development Centers (SBDCs), a network of business assistance offices developed through a partnership with the SBA, advise borrowers to take steps now to be ready to apply for a PPP first or second-draw loan once the SBA portal and financial institutions are ready to accept applications. Borrowers can gather basic information likely to be needed for any application in advance to speed the process.

Abrigo's PPP solution

See how PPP origination works


What's required

Gather documents to apply for PPP loans

“The most important thing is to get your financials prepared,” Catherine Marx, District Director for the SBA’s Connecticut District Office, said during a webinar hosted Jan. 5 by Connecticut’s Small Business Development Center. “It’s the beginning of the year. Get your finances in line so as soon as the banks get their portals open you can hop on this.”

““It’s the beginning of the year. Get your finances in line so as soon as the banks get their portals open you can hop on this.” ”

Documentation for substantiating payroll is generally the same as for initial PPP loans, according to the latest guidance. However, the good news for some second-draw borrowers is that applicants may not need additional documentation to substantiate payroll costs if they:

  • used calendar year 2019 figures to determine the first-draw PPP loan amount and
  • used calendar year 2019 figures to determine the second-draw PPP loan amount and
  • the lender for the second-draw PPP loan is the same as the lender that made the applicant’s first-draw PPP loan.

“In such cases, additional documentation is not required because the lender already has the relevant documentation supporting the borrower’s payroll costs,” according to the SBA guidance. “The lender may request additional documentation, however, if on further review the lender concludes that it would be useful in conducting the lender’s good-faith review of the borrower’s loan amount calculation.”

Borrowers seeking second-draw loans aren't required to use the same lender that they used for a first PPP loan. However, borrowers using a new lender will want to locate and provide to the new lender the SBA loan number for their original PPP loan. That loan number is required for the second-draw loan application, and lenders don't have a way to look up PPP borrowers' loan information from the SBA platform.

SBDC Business Advisor Steven Semaya said that businesses could begin gathering the following documents to make the application process go more smoothly:

1. 2019 tax returns or 2019 year-end financial statements

2. 2020 tax returns (estimated, Schedule C/K) or 2020 year-end financial statements

3. Last four quarters of payroll forms (Form 941)

4. Verification of number of employees and payroll incurred over the most recent 12-month period

5. Forms 1099-MISC for self-employed individuals

Semaya also recommended business owners identify employees receiving more than $100,000 as they are going through payroll, since compensation used to calculate PPP loans is capped at $100,000.

“Beginning to gather that type of information now would be helpful,” he said.

Borrowers applying for second-draw or even initial PPP loans during this next round of the PPP will be able to use the funds for more types of expenses. Payroll expenses must still account for 60% of PPP loan funds spent for the loan to be forgiven. But among the types of other expenses now included in those considered covered by PPP loans:

  • Operations expenditures: Business software; cloud computing services; product or service delivery; payroll expense processing, payment, or tracking; human resources, sales, and billing functions; accounting or tracking of supplies and inventory
  • Property damage costs: Costs related to vandalism or looting due to public disturbances in 2020 if not covered by insurance or other compensation
  • Certain supplier costs: Including those for perishable goods
  • Worker protection costs: Capital or operating expenses related to complying with requirements or guidance from the Centers for Disease Control, the Department of Health and Human Services, the Occupational Safety and Health Administration, or equivalent state or local government agencies after March 1. These can include items from personal protective equipment, ventilation changes, and health screenings.

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About the Author

Mary Ellen Biery

Senior Strategist & Content Manager
Mary Ellen Biery is Senior Strategist & Content Manager at Abrigo, where she works with advisors and other experts to develop whitepapers, original research, and other resources that help financial institutions drive growth and manage risk. A former equities reporter for Dow Jones Newswires whose work has been published in

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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