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The Unfairness Surrounding PPP Second Draw Loans

Mar 23, 2021 3:10:00 PM Kathy Dise Budgeting, Small Business, Financial Management

bigstock-Bank-Debt-Money-Loans-And-Cre-378828760The second draw of PPP funds is a life raft for many small businesses. There are a lot of great changes to the eligibility rules and uses of PPP-2 funds. Unfortunately, there are a few changes that many deem unfair. 

To qualify for a PPP-2 loan you must:

    • Have previously received a first draw PPP loan and will (or did) use the full amount only for authorized uses.
    • Have no more than 300 employees
    • Demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

Sounds reasonable, right? Well sort of.

Let’s look at a few scenarios.

Scenario 1: Small Business A

This business managed to get through 2020 and experienced lost receipts each quarter of 20%. They remain in business, in part because they received a PPP first draw loan, but it’s a struggle.

Since there was not a loss of at least 25% in ONE quarter, Small Business A does not qualify for a second draw PPP loan. Overall, this business had an 20% loss in gross receipts in 2020 compared to 2019.

Scenario 2: Small Business B

This business had a terrible second quarter in 2020. Gross receipts were down 45% compared to the second quarter of 2019.

Quarters three and four were brighter for Small Business B. They were able to pivot and bring in gross receipts 15% over that of third quarter 2019. Fourth quarter, while not as great, still provided a 10% increase over fourth quarter 2019.

Small Business B is eligible for the second draw PPP loan because they had a loss in excess of 25% in the second quarter of 2020. Small Business B was down 20% overall for 2020, the same as Small Business A.

Scenario 3: Small Business C

This business is a restaurant who experienced a crushing loss of sales. During portions of 2020, they were forced to suspend operations. Fortunately, they received a first draw PPP loan, reopened, and focused on carry-out. Given the reduction in sales, this business was not able to bring back all employees they had pre-pandemic. As such, they were not able to spend the required 60% of PPP funds on payroll. For that reason, they are not eligible for a second draw PPP loan even though they had the biggest need.

Is the eligibility process unfair?

If you look at the scenarios presented, it’s hard to say the PPP 2 approach is fair. The eligibility criteria doesn’t take a holistic look at the reduction of gross receipts. In the scenarios provided, the only small business that is eligible for a second draw is the one who experienced the least loss.

Is your small business eligible for a PPP-2 loan?

We would love to help you determine your eligibility for a second draw PPP loan or assist you in applying. Reach out to us at to see how we can help.

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Kathy Dise

Written by Kathy Dise

Kathy has over 30 years experience helping small businesses succeed. As a commercial lender, commercialization expert and now as a QuickBooks diamond level advisor, Kathy understands the challenges small business owners face. Her experience helps business owners quickly accomplish their financial goals. As the owner of BudgetEase, Kathy works with clients to develop a plan to efficiently process 1,000s of small transactions so owners can make informed decisions. She lives in Shaker Heights, OH with her husband Ralph and enjoys golf, curling and walking in Cleveland’s fabulous Metro Parks.