On Monday, April 27 at 10:30 a.m. EDT, small businesses can once again apply for the Paycheck Protection Program.
On Friday, April 24, President Donald Trump signed a measure that allotted an additional $310 billion to the SBA program created out of the CARES Act.
Designed to keep small businesses and nonprofits afloat during the coronavirus pandemic, the initial funding for the program, $349 billion, ran out after less than two weeks.
With more than 5,000 banks across the U.S. now approved to administer the loans and a backlog of businesses that did not receive funding in the first round, SBA Great Lakes Regional Administrator Rob Scott estimates the new round of PPP funding could run out in as quickly as a week.
So how can small businesses better position themselves for the next round of funding? Scott says businesses should have a conversation with their lender.
PPP loans are unique in that they are administered through a national network of lenders, not through the SBA. Scott says the SBA has no way of knowing if a lender has a business’ application on hold or in a queue. The SBA does not receive a business’ information until a lender submits it to the organization. When the funding ran out on April 16, the SBA closed its system, meaning no new PPP applications could be submitted.
“My advice to the small business owners and nonprofits that want a PPP loan is you need to have a conversation with your lender, see where your application is, whether it was submitted for the first round, and if it was, they should have heard, and if it wasn’t, can they guarantee that they will submit it for the second round, or whether in the lender’s processing do they need to resubmit anything,” Scott says.
There will be a few changes this time around, from what banking institutions receive funding, to more guidance on what businesses should be applying.
The new legislation reserves $60 billion for smaller credit unions, community banks and community development financial institutions – $30 billion for entities with assets under $10 billion, and $30 billion for entities with assets between $10 – $50 billion.
Asked about the oversight of this funding, Scott said he could not speak directly to the process, but noted that when a lender applied to administer PPP loans, that application included information that would enable the SBA to identify institutions in these categories.
Following the depletion of the first round of funding were headlines that larger, publicly traded companies had cashed in the loans. After much backlash, several of these companies, including Shake Shack, Ruth’s Chris and Sweetgreen had agreed to return their loans.
The returned loans (so far) total $40 million. The SBA shared that in the first round of funding, the average loan size was $206,000. At an average size, the returned money could support an additional 194 small businesses.
Asked what was being done to ensure that small businesses that lack other funding options were actually receiving money – and how larger companies were even able to access the loans in the first place – the SBA offered more insight into the loan process that has often required learning as they go.
The PPP loans rely on businesses to self-certify that they meet the qualifications – a decision meant to speed up the loan process.
“In a regular SBA lending world…there are some more guardrails built into the program which it looks at credit elsewhere, it looks at credit scores – all those typical things,” Scott says.
Through the CARES Act, almost all of the “guardrails” were dropped. With guardrails down, businesses are supposed to receive a quicker, almost instant decision, Scott says.
Moving forward, the U.S. Department of the Treasury has issued guidance – guidance that’s not necessarily legally binding – about the self-certification process for loans.
“The Treasury Department has posted an updated FAQ that limited publicly traded companies from accessing the PPP program,” Scott says.
The guidance and FAQ in full can be found here, with question 31 addressing large companies.
With the money expected to run out within a week, questions are already being raised about a third round of funding. Scott says there have been discussions in Congress about another wave of funding, with more details expected to emerge by the end of the coming week. Scott noted that the President of the Consumer Bankers Association has said there needs to be about $1 trillion allocated to the PPP program to meet demand across the country. So far a combined $659 billion has been allocated to the PPP program.
For those businesses that did receive PPP loans, Scott says the coming days should bring more guidance on keeping records and how to comply with the loan terms.
The new legislation will also replenish appropriations for another SBA loan program. $50 billion has been earmarked for Economic Injury Disaster Loans, including an additional $10 billion for the EIDL Advance Program.
For more information, visit sba.gov.
Disclosure: Evans Creative Group, operator of The Metropreneur and Columbus Underground, did receive a PPP loan in the first round of funding.