Small Businesses Get Another Shot at Paycheck Protection Loans

May 1, 2020
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Author: Glenn Hunter

Carol Ferguson needs a loan from the federal Paycheck Protection Program (PPP) to see her Denver jewelry boutique through the COVID-19 pandemic. But she was too late getting her paperwork together to apply for the program’s first round through JPMorgan Chase, her regular bank.

So, when Chase advised her its pipeline was already full of requests for the PPP’s second round, which began accepting applications on Monday, Ferguson took her business to Kabbage, an online loan originator, she told the Denver Post. Now her application is being reviewed.

The newest version of PPP aims to offer funding to more small businesses.

The Colorado retailer is one of many small business owners who’ve applied since April 27 for the latest phase of the PPP, the federal government’s effort to help small businesses hobbled by the pandemic. Congress passed the $484 billion relief package and President Donald Trump signed it into law last week.

Some are calling the measure CARES Act Part II, because it adds to the $2 trillion Coronavirus Aid, Response and Economic Security (CARES) Act the president signed on March 27.

The new package pumps $320 billion more into the PPP, which within 14 days ran out of the $349 billion it was originally allotted. The program, which is overseen by the Small Business Administration, provides loans of up to $10 million for small businesses and 501(c)3 nonprofits with up to 500 employees.

The loans are made through a network of approved lenders, have a 1% interest rate and can be forgiven entirely if they’re used to keep paying employees and rent and utilities. This time around, about $60 billion of the $320 billion has been set aside specifically for loans by smaller banks and credit unions to borrowers such as rural or minority- and woman-owned companies.

The new relief measure also allocates $60 billion for SBA disaster assistance loans and grants, $75 billion for grants to hospitals and healthcare providers and $25 billion for coronavirus testing.

On April 28, the SBA said it already had approved 475,000 PPP loans worth more than $52 billion. That’s about 16% of the $320 billion available.

Many Small Businesses Shut Out in First Phase

According to the SBA, 1.6 million small businesses received funds during PPP’s initial round. Treasury Secretary Steven Mnuchin said more than 1 million of the companies had fewer than 10 workers each and that 74% of the loans were for less than $150,000.

Even so, the 1.6 million small businesses are just a fraction of the nation’s 30 million or so small businesses. So many small organizations were shut out of the first-come, first-served program during the initial tranche because they couldn’t access the banks’ online portals to apply.

Related: Rebound: 3 Recovery Scenarios for the U.S. Economy

At the same time, scores of public companies were able to nab PPP loans worth hundreds of millions of dollars because of loopholes in the law. Among them were data storage firm Quantum Corp., biotech company WaveLife Sciences USA Inc., and sandwich chain Potbelly.

The Treasury Department has stated that the public companies would have to return the loans by May 7, since the loans weren’t meant for big companies with access to alternate sources of capital. The guidelines for the PPP’s latest round require companies to certify that “current economic uncertainty” makes them need the loan. The guidelines also state that if companies have other sources of cash available, they probably won’t qualify.

Due to high demand, it’s a safe bet this second round of funding will go fast. So, there’s already talk in Washington, D.C. about a third tranche of the PPP. It probably wouldn’t come until early or mid-May, after Congress reconvenes.

ThinkWhy will continuously monitor and report on these developments. Stay current with us. We are here to support organizations and provide insights during the economic downturn as well as the recovery phase.