New legislation: The second round of PPP loans and small business relief for 2021

Updated: August 25, 2023

By: Elliott Brown

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As 2020 came to an end, Congress offered small businesses a second helping hand by passing the Consolidated Appropriations Act, 2021. This new legislation expands the CARES Act to help small business owners in several ways, including;

  • A second draw of forgivable Paycheck Protection Act (PPP) loans
  • More favorable tax treatment of expenses related to PPP loans
  • Expanded use of the Employee Retention Credit (ERC)



The Small Business Administration (SBA) and Treasury department are slated to roll out detailed guidance over the next few weeks, but here’s a sneak preview of what’s on the way.

Payroll Protection Plan Extension Act signed into law

On March 30, 2021, the PPP Extension Act was signed into law extending the deadline to secure a new loan from March 31 to May 31, 2021. If you are a business owner with questions about layoffs and unemployment, payroll or tax law updates, or other issues related to the COVID-19 outbreak, please visit OnPay’s COVID-19 Resource Center.

Payroll that will never let you down

PPP loans are still available

Though the original window for PPP loan applications closed on August 8, 2020, new legislation including the PPP Extension Act has made it possible for businesses to secure a new loan through May 31, 2021. If this is their first PPP loan, qualified businesses can apply for a loan up to $10 million, based on their payroll expenses. Here’s a little more about how PPP loans work.


The new application form is now available from the SBA, and businesses can apply by submitting this form to an SBA-approved lender.

A second round of PPP loans

Can businesses get a second PPP loan? The answer is finally yes!


Businesses that received a PPP loan previously are now eligible for a second loan of up to $2 million if they meet the following conditions:

  1. They used the full amount of their first PPP loan
  2. They have 300 or fewer employees
  3. They saw a 25% drop in revenue during any quarter of 2020 (compared to the same quarter in 2019)



The SBA is beginning to issue more specific guidance about the application process, loan forgiveness, and eligibility, but there are still a few more details to fill in. Here’s what we know so far:

  • For most eligible businesses, the maximum loan amount is 2.5 times its average monthly payroll costs, based on the 2019 calendar year, the 2020 calendar year, or a one-year look back — with a limit of $2 million.
  • Restaurants, hotels, and other food service and hospitality businesses described by NAICS 72 can receive loans up to 3.5 times their average monthly payroll cost, subject to the same $2 million cap.



In the legislation, $25 billion of PPP loans are set aside specifically for borrowers in low income areas that either have up to 10 employees or request loans of less than $250,000.

Updated industry eligibility for PPP loans

In addition to for-profit businesses and 501(c)(3) nonprofits that were in operation before February 15, 2020, eligibility for the new round of PPP loans also includes:

  • Partnerships, the self-employed, and sole proprietors
  • 501(c)(6) organizations
  • Destination marketing organizations
  • Housing cooperatives
  • Newspapers, broadcasters, and radio stations
  • Businesses in bankruptcy



However, publicly traded companies and businesses who receive a Shuttered Venue Operator Grant are both ineligible for this new round of PPP loans, as well as any entities listed in 13 C.F.R. 120.110 that aren’t included in the list above.

Simplified applications for a second PPP loan

A new loan application form is now available. The application process should be similar to the first round of PPP loans, but a few changes have been made to streamline some of the required documentation:

  • For second-time PPP borrowers: No substantiation of payroll expenses is needed for a second draw loan if 2019 payroll expense figures are used in the application and an applicant applies through the same lender.
  • For loans of less than $150,000: The applicant is not required to submit documentation to establish a quarterly (year-over-year) revenue reduction of 25% or more.
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Expenses that are eligible for forgiveness

To have its PPP loan forgiven, a small business must spend at least 60% of its loan on payroll expenses, and the other 40% can come from specified non-payroll expenses, like rent, mortgage, and utilities. Under the new legislation, the list of eligible non-payroll expenses has been expanded to include expenses related to:

  • Software
  • Cloud computing
  • Human resources and accounting needs
  • Property damage costs due to public disturbances that occurred during 2020 and are not covered by insurance
  • Some supplier costs (related to purchase orders or contracts that were in place prior to taking out the loan and essential to business operations)
  • Some worker protection expenditures (like for PPE or facilities improvements made to enhance worker safety)

Covered period for first draw loans

The “covered period” when funds from a PPP loan must be spent is still the borrower’s choice of 8 or 24 weeks from either the origination of the loan or the beginning of the first pay period after the loan is received. However, the new legislation extends the final date by which the original loans must be spent until March 31, 2021. Previously, funds had to be spent by the end of 2020.


Any new PPP loans will have the same 8 or 24 week covered period. See a detailed description of how the covered period works.

Simplified forgiveness application process

For both outstanding PPP loans and second draw PPP loans that are yet to be issued, businesses that borrow less than  $150,000 can apply for forgiveness by filling out a simplified one-page certification form, which includes:

  1. The loan amount
  2. The number of employees retained, and
  3. The estimated total amount of the loan spent on payroll costs



The forgiveness application form will be available from the SBA by the end of the third week of January, and the SBA is responsible for creating an audit plan by mid-February. Despite the simplified forgiveness process, borrowers should still retain employment records for four years.



PPP tax implications: Forgiveness is tax exempt, expenses are deductible

The new legislation overrides previous IRS and Treasury Department guidance that did not allow the deduction of any qualified expenses that were associated with a forgiven PPP loan. That means borrowers now will receive additional tax relief because the expenses that their now-forgiven loan covered may also be deducted as a business expense.

Changes to Employee Retention Tax Credits

Under the original CARES Act, Employee Retention Credits (ERC) were only available to businesses that were wholly shut down, partially shut down, or losing 50% or more revenue compared to the same quarter in 2019. A business that received a PPP loan was also ineligible for ERC.


The new legislation expands eligibility for employee retention tax credits in three ways:

  1. The required revenue loss requirement has been reduced from 50% to just 20%.
  2. Businesses may now receive a PPP loan AND take advantage of ERC.
  3. ERC may now be taken retroactively (however, there can’t be any overlap between payroll expenses that a company counts toward a PPP loan and ERC).



The amount of the tax credit has also been increased, and the period of eligibility now includes January 1, 2021 through the end of June. More details are expected from the SBA and Treasury soon.



Additional updates

As the SBA and Treasury issue additional guidance, we will update this article and all the materials in our Small Business COVID-19 Resource Center. Businesses who use OnPay for payroll and HR will also have access to tools that streamline the process of applying for PPP loans, taking advantage of employee retention tax credits, and calculating payroll costs. Learn more about how we can help.

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Elliott Brown is the former Director of Marketing for OnPay. Before joining the team full time, he was a marketing consultant for fintech startups, and he ran content marketing programs at SurveyMonkey and