PPP First and Second Draw Loan Q&As: Borrower Scenarios for Lenders

Over the last two weeks, the Small Business Administration has slowly reopened the Paycheck Protection Program--first for Community Financial Institutions and lenders with assets below $1B, then for all other lenders as of this week.

During that time, we’ve helped more than 118 banks and credit unions automate this complicated process for their borrowers. To date, lenders using the Numerated platform have already accepted more than $9.5B worth of first and second draw loan applications.

In support of this extraordinary effort, our insights team has held daily Q&A sessions with our lender partners to answer their most pressing questions about the program and how to support their borrowers.

As a way to share these insights and provide a reference for lenders, we’ve organized some of the most common “borrower scenario” questions that we’ve fielded during our daily webinars below.

Borrowers seeking first and second draw loans

Q: Are first round PPP borrowers required to submit forgiveness applications to the same institution that they received their loan from? Are they required to apply for a second draw from the same lender?

A: Borrowers are required to do forgiveness with the same institution. Second draws do not need to be from the first lender.

Q: What happens if a customer applied for a first round loan with another FI and wants to apply for a second round draw with a different FI?

A: Assuming they were approved, they will just need to provide the first draw SBA Loan number, as it is needed to submit the second draw application to the SBA.

Q: If borrowers never had a first PPP loan, should they apply for a first draw loan or go straight to the second draw?

A: If a borrower doesn't have a first draw loan yet, that is what they should apply for. Second draws require a PPP loan number in the application.

Q: If a customer did not participate in the first draw of PPP, does this make them ineligible for the second draw?

A: If they are eligible for PPP loans, they would apply for a first draw loan first. Then after those funds are used (if the program is still open) they could come back for a second draw.

Q: For the $150,000 threshold, if borrowers had a first round loan, regardless of whether it was forgiven or not yet, and they come back for a second round PPP loan, do FIs combine the balances to determine if verification is required up-front for the revenue drop threshold?

A: It is our understanding that these are considered separate loans and each evaluated based on their individual loan amounts.

Q: This is our first time offering PPP loans. If one of our banking customers already received a PPP loan and is requesting a second draw under $150K, do we need to collect documentation?

A: We do not believe that will be necessary for borrowers working with the same lender as their first draw loan.  The borrower will need to provide the original (first draw) SBA loan number and supporting documents for payroll to be validated at application submission if working with a different lender on their second draw loan.

Q: What is the fastest way to get a second draw loan?

A: Depending on the lender borrowers worked with for the first round loan, the fastest way for borrowers to get a second draw loan is to apply with the same lender, using 2019 payroll information that was used for the first round loan. FIs can choose to forgo revalidating your loan amount which should speed things up.

Q: If borrowers already received full forgiveness on a first draw loan and paid that loan in full, could borrowers still apply for second round funding, if they still meet the new eligibility requirements?

A: Yes, it is our understanding that this borrower would be eligible for a second draw loan.

Use of Funds/Eligibility

Q: For this round of funds, are businesses that opened in 2020 would qualify to apply?

A: Per the SBA: You are eligible for a PPP loan if: (i) you were in operation on February 15, 2020.

Q: Can a customer apply for a first draw PPP loan now, spend the funds, and then apply for a second draw before March 31?

A: Theoretically, yes but they would need to get the first draw loan early in the process (late January) and use an approximately 8 or 9 week coverage period to spend all funds in order to certify for the second draw loan.

Q: If someone received partial forgiveness, are they eligible for a second draw?

A: We are not aware of anything that would prevent this, but it may require a more critical review of the second draw loan amount.

Q: If they answer any of the eligibility questions with regards to felonies, will the workflow automatically reject them or alert them?

A: It alerts them and prevents submission. Similar to the 2483 that explains they won't be approved, we try to catch & alert while in the application.

Q: We are seeing some sources say that a business looking to get a round 2 PPP loan must have already had their first PPP loan forgiven, or paid off the balance, to apply for the second loan. Have you seen this in any preliminary SBA guidance or in the bill text itself?

A: We have not. The bill describes that the money needs to have been used, but does not require forgiveness to have been processed. In our early discussions with the SBA, they will only require an SBA loan number from a first draw loan.

Documentation and Data

Q: Will the system require revenue documentation to be uploaded during the application process if the loan is in excess of $150k for existing clients?

A: Yes.

Q: How do you handle a non-profit in which there is no owner?

A: The application asks if there are owners and accepts none as an answer. Separately, Numerated asks for a single authorized signer who will submit the application and sign documents.

Q: The PPP falls under the SBA 7A loan program and this program requires that a Certificate of Good Standing is obtained for the borrower. However, no such requirement exists on your platform. Can you explain why this requirement is not applicable to the PPP loan program?

A: The CARES Act was enacted to provide immediate assistance to individuals, families, and businesses affected by the Covid-19 emergency. Among the provisions contained in the CARES Act are provisions authorizing SBA to temporarily guarantee loans under a new 7A loan program titled Paycheck Protection Program. Therefore, borrowers must now provide the following documentation: payroll processor records, payroll tax filings, or Form 1099-MISC or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.

SBA

Q: In the first round of PPP, approvals happened in real-time. This is not the case with new originations. How long will it take for a borrower’s loan to get approved?

A: On average, we expect the SBA to take 1-2 days to respond to a borrower’s request.

Q: If a hotel/restaurant had a first round PPP loan, can FIs increase that loan to 3.5x even if the borrower did not have the 25% decrease in income in a quarter?

A: We interpret the rule for 3.5x to apply to the second draw only.

Q: Is the 3.5x multiplier for NAICS code 72 just for second loan requests or both?

A: We believe it only applies to the second draw loans.

Q: Do travel agencies fall under the 3.5x payroll?

A: It's NAICS code 72. We believe Travel agency is 56, so it would not be eligible.

Q: How do you handle a non-profit in which there is no owner?

A: The application asks if there are owners and accepts none as an answer. Separately, Numerated asks for a single authorized signer who will submit the application and sign documents.

There’s still time to register for our daily webinars. Save your seat for tomorrow’s session at 3pm EST, here.