Contractors Should Consider Applying for a Second Draw PPP Loan

As we near the end of the pandemic and one of the longest, coldest winters in recent memory, the Paycheck Protection Program program may provide the relief many construction companies need to see them through to the other side of this crisis.
By Benjamin Johnston
March 11, 2021

A year after the world shut down due to the COVID-19 pandemic, construction businesses continue to grapple with the fall-out. While most states have lifted stay-at-home restrictions, demand surges in construction and supply chain disruptions have made certain materials scarce, creating long lead times and cost overruns, putting additional pressure on contractors trying to service their clients, pay their employees and still have something left for themselves.

As we near the end of the pandemic and one of the longest, coldest winters in recent memory, the Paycheck Protection Program (PPP) program may provide the relief many construction companies need to see them to the other side of this crisis.

PPP 1.0—A Recap

Launched in March 2020, PPP was designed with the intent to help struggling small business keep their employees and pay their expenses by providing five-year loans at a 1% interest rate to active businesses. Loan amounts were set at 2.5 times historical monthly payroll and could be fully forgiven if, over the 24 weeks post-funding, a business paid more in employee compensation, rent/mortgage interest, operating expenses and materials costs than the original amount of the loan.

The first round of PPP got off to a rocky start as funds were quickly exhausted when banks prioritized their largest clients over smaller businesses. Additional funds were allocated to the program in April 2020 and those businesses that had been initially shut out were given another opportunity to access funds. The initial program provided over 5 million small businesses with $525 billion in loans, with $65 billion of that going to nearly 500,000 construction companies. The program expired in August 2020 with billions of dollars in unallocated capital.

PPP 2.0—What’s Different?

As 2020 progressed, it became clear that the impact of the pandemic was going to last longer than anticipated when the first round of PPP was conceived. The program was designed to encourage businesses to continue paying employees and other financial obligations at similar levels to what they had been paying prior to COVID. If they did so, they could comfortably expect to have their loan fully forgiven. What was not anticipated was that, almost a year later, economic activity would remain significantly impaired as businesses struggled with many of the same problems they faced in the spring of 2020.

To address some of these needs and help businesses prepare to grow into what is expected to be an improving economy this spring, an additional $284 billion in funds were authorized in January 2021. These funds are available to businesses that had already received a PPP loan during the first round as well as businesses that would have qualified for the program but failed to act before it expired last summer. Second-draw loans carry similar terms to first-draw loans but with several notable differences aimed at allocating capital to smaller, more troubled businesses including:

  1. Qualifying businesses must have experienced a 25% decline in revenue in one quarter of 2020 over the same quarter of 2019;
  2. The maximum loan size is capped at $2 million, down from $10 million in the first round;
  3. Businesses with more than 300 employees no longer qualify (with some exceptions for businesses with multiple independent locations);
  4. Public companies no longer qualify; and
  5. Businesses in the hospitality industry (restaurants and hotels) are able to borrow at 3.5 times historical monthly payroll versus 2.5 times for all other industries.

To apply for a second draw PPP loan, businesses should have several key documents on hand including:

  1. the PPP loan number issued by the SBA during the first draw;
  2. payroll statements that demonstrate historical monthly payroll expense;
  3. quarterly and annual tax returns for 2019 and 2020 as available;
  4. historical quarterly financial statements or bank statements capable of demonstrating revenue reduction in 2020 over 2019; and
  5. a copy of the applicant’s drivers license of similar government issued ID.

Why You Should Consider Applying for a Second Draw Loan

A PPP loan is the lowest cost financing available to small business in the market today and—when considering the probability of having the loan forgiven—is something all qualifying small businesses should pursue, but the time to act is now. The second round expires March 31, 2021, and the application process is proving to take longer than the first round as the submitting bank and the SBA are reviewing each file to determine eligibility. As a result, applicants should be prepared to wait two to three weeks to receive funding. The program has helped millions of businesses to date and those that participate will have a leg up as the economy emerges from the COVID-19 recession. Now is the time to secure the capital you need today and to prepare for growth tomorrow.

by Benjamin Johnston
Benjamin Johnston is the Chief Operating Officer at Kapitus, one of the most reliable and respected names in small business financing. Kapitus provides growth capital to small businesses and has provided over $3 billion to over 50,000 small businesses since 2006. Kapitus has also helped hundreds of small businesses obtain PPP loans over the past year. Learn more at

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