Second-Draw PPP Loans: What Dermatologists Should Know

By Mark Schmidt, CEO, Fund-Ex Solutions Group

Dermatologists have proven their resiliency throughout the pandemic, and now more help is here with another round of funding through the Paycheck Protection Program (PPP). The Economic Aid Act reopened the Small Business Administration’s PPP, and applicants who meet certain criteria are eligible for an additional PPP loan (a Second Draw). 

There are important factors and differentiators to note about Second-Draw PPP loans. My company helped more than 1,300 borrowers secure over $150 million in PPP loans during the first round of funding under the CARES Act, and we’re participating in the program again. Here are some key questions we’re answering for our Second-Draw borrowers:  

Q: What’s the application deadline?

A: You can apply for a Second Draw until March 31, 2021.

Q: How have loan terms and forgiveness requirements changed?

A: Loan terms and forgiveness requirements remain largely the same as defined in the original program except as noted in the next section:

• At least 60 percent of the forgiven amount must be spent on payroll costs. The remaining 40 percent or less can be used on other costs, including business mortgage interest payments, rent, utilities, and some newly eligible expenses .
• Loan proceeds must be exhausted before applying for forgiveness.
• Borrowers can apply for forgiveness as soon as loan proceeds have been expended.
• Detailed documentation—such as paid checks, payroll documentation, receipts, and billing statements—of paid expenses must be retained, but only has to be submitted with forgiveness applications for loans over $150,000.
• Borrowers must use the funds during the applicable covered period (any timeframe between eight and 24 weeks from loan disbursement) in order to have the loan forgiven.

Q: What about loans that are $150,000 and under?

A: The forgiveness process has been simplified and now only requires a one-page application for loans of $150,000 or less. Supporting documentation such as payroll records and receipts are not required to be submitted with the forgiveness application, but Second-Draw borrowers must at that time provide evidence of a reduction in gross receipts (if not submitted at the time of loan application).

Q: Is PPE eligible for forgiveness?  

A: Yes. SBA has expanded non-payroll-eligible expenses to include worker protection, operating expenses, and essential supplies. These are welcome and necessary additions for dermatology practices that have had to purchase PPE to keep their patients and staff safe. These expenses, when combined with all other non-payroll expenses, must remain under the 40 percent cap. 

Q: What businesses qualify for more funding?

A:  Eligibility criteria for Second-Draw loans include the requirement that borrowers demonstrate a 25 percent or greater decline in gross receipts for any quarter in 2020 compared to the same period in 2019.

Q: What’s the maximum number of employees allowed?

A: For Second Draw loans, the employee maximum is lowered. To qualify for a Second Draw, applicants must have 300 or fewer employees; this was reduced from 500 or fewer employees in the first round.

Q: How much can I apply for?

A: Most borrowers can get a Second Draw loan in the same amount as the First Draw (up to 2.5 times the borrower’s average monthly payroll during 2019 or 2020).  The maximum Second Draw loan is $2 million—which is a significant reduction from the first round’s $10 million maximum.  

Q: Where should I apply for a Second-Draw loan?

A: Work with your original lender, if possible. You can greatly benefit from going back to your original lender, which can expedite the process because your application will build off your first loan application.  

With additional help now available through the PPP, dermatologists can approach the first quarter of 2021 with renewed confidence. Implemented correctly, the PPP will be a major advantage for many practices, small businesses, our local communities, and the national economy. 

Mark Schmidt is CEO of Fund-Ex Solutions Group, an SBA Preferred Lender and one of only 14 non-bank lending companies licensed by the SBA to offer 7(a) loans and the Paycheck Protection Program. Visit fundexsolutions.com for more information.