PPP Loan Additional Funding
For businesses struggling amidst the COVID-19 pandemic – help is on the way. But just how much help is it really?
Under the Consolidated Appropriations Act (CAA), Congress approved an additional $284.5B for the Paycheck Protection Program (PPP), and added modifications to the forgiveness process. We’re calling it PPP2. The program will give loans/potential grants to eligible new borrowers as well as qualified second round borrowers who have already received and used a loan under the first round (PPP1).
PPP2 goes much further than PPP1 did to ensure relief funds are directed towards small businesses. “On the first round, a lot of very small and minority-owned businesses got shut out — for a variety of reasons. This bill targets those firms, and blocks big, publicly held companies from participating,” explained Andi Gray, president of business consulting firm Strategy Leaders. “The new round also broadens what the funds can be used for and makes qualifying expenses tax deductible — which is all good news.”
While the Small Business Administration (SBA) has not issued final rules about how the new law will be implemented, here is what we know so far.
The new loan is expected to hit sometime mid-January, starting with Community Banks opening for applications this week, followed shortly thereafter by all other banks. Businesses are eligible if they meet the criteria of 300 or fewer employees and have experienced a 25% revenue reduction in any quarter of 2020 versus the same quarter of 2019. If they got PPP1, they must certify that they have used the full amount of their first PPP loan. The PPP1 application window will also re-open for companies that did not initially get approved. Just as with PPP1, PPP2 borrowers will be able to choose their own coverage period – between 8 weeks and 24 weeks. Section 501(c)(6) not for profit organizations will be eligible to apply.
Under PPP2, simplified forgiveness will be offered on loans of $150,000 or less. New covered expenses are eligible for forgiveness such as those related to property damage, operations expenses, PPE, and supplier costs. Once PPP funds are issued, banks are predicting they will be able to start processing forgiveness on PPP2 loans in February or March.
Experts are urging small businesses to approach the use of PPP funds with caution. Get help. Get good advice. Make a plan. Use the funds wisely.
“We cannot afford big mistakes. Every small business that fails has an average of 5 employees who lose their jobs, plus an additional 3-5 companies that lose work — potentially going out of business as well. Numbers can keep spiraling downwards for a long time to come,” said Gray. “Alternately, small business owners are highly resourceful, dedicated, and driven to innovate. Give them help, they’ll get the job done, and our economy will get back on track quickly.”
SBA has PPP1 and PPP2 applications on their website, which you can use to prepare to apply. Be aware however that most banks will require that you use their automated application process, which will mirror the information required by the SBA. We recommend going to your local bank for guidance.
On the downside, Andi observed "PPP2, like PPP1, is targeted at helping businesses keep people employed for a short period of time. While that will help the unemployment numbers, it does little to nothing for long-term stability of the economy.
“Long term we have to figure out how to keep businesses alive and on track for growth and profit. We must help small business owners figure out what business they’ll be in six months to six years from now and how to rebuild to get there. We have to ensure they have the financial wherewithal to do that necessary rebuilding — that's not the question the PPP program is trying to answer."
Gray comments, “We have to be careful economically. Besides being a short-term intervention, the PPP programs drain the Treasury, load the federal government with debt and burden future generations with taxes to pay off the deficit caused by these stimulus programs.
Gray recommends more aid in the from of TARP for Small Business (Troubled Asset Relief Program), which she describes as low interest loans that eventually get repaid. In 2008 the federal government authorized TARP loans for big banks, insurance companies and automakers. Within 10 years the money was paid back, with interest. Gray contents, “The EIDL program at the beginning of COVID was headed in the right direction – long term lending at low interest rates; unfortunately, it was gutted in favor or PPP1. Now that PPP2 is out there, it’s time to use the power of federal lending to get funds to small business owners who need money to stabilize, plan and grow, as long as they are willing to agree to pay it back.”
Small businesses are a serious economic force we cannot afford to lose. In the 2008-2009 economic crisis, we lost millions of small businesses, and it took nearly 10 years to get our economy back on track. This crisis is bigger, deeper, and longer lasting, impacting small businesses in nearly every sector. It is going to take much more than the PPP programs to recover.
Gray insists, “There is no doubt the future of the U.S. economy hinges on the survival of small businesses in 2021 and beyond. We cannot turn our backs on small businesses in need of capital. Unfortunately, in every recession, the banks must shut down lending to troubled small businesses. Only with additional, significant, direct federal relief will there be enough long-term funding available for millions of small businesses to work through the next several years of rebuilding.”