On Tuesday April 21st, the Senate passed a $484 billion bill which provides additional funding to the Paycheck Protection Program. The House is widely expected to pass the bill by Thursday. Loan approvals could commence on Friday.
The Paycheck Protection Program was created by the Coronavirus Aid, Relief and Economic Security (CARES) Act. The premise was simple, establish an easy, low-cost way for small businesses to retain workers in a time of economic uncertainty, thus protecting employee paychecks and positioning businesses to more easily restart when the economy opens back up.
The final terms of the program were very favorable, use 75% of the proceeds to retain workers, use the remaining funds for other qualifying expenses, and most of or all the loan converts to a tax-free grant. If businesses didn’t meet the forgiveness requirements, the unforgiven balance takes the form of a 2-year 1% interest unsecured loan.
Unsurprisingly, the program was popular. The huge popularity combined with a rushed rollout led to widespread frustration amongst small businesses who had difficulty finding lenders. Although the application process formally began on April 3rd, few small businesses were able to immediately apply. Many banks limited access to existing customers who met certain criteria or were so overwhelmed by applications that small businesses went days or weeks without a response. By April 17th, the initial $349 billion allocated under the CARES Act had been exhausted.
As an example, one of our clients applied on March 6th, the first day the large national bank they use was accepting applications. Prior to that date, they completed an online form to be notified when they could apply. On March 7th and again on the 10th they were notified that they could now apply (which they’d already done). There was no status update, no one to call, no portal to log into, nothing until the 17th, when they were notified that funding had been exhausted. Finally, on the 19th, they received notice that the loan had moved to the second of four phases in the application process. It’s easy to see why business owners became frustrated with the process.
During this same time period, we were helping many other clients secure PPP loans and here’s what we noticed, smaller banks and credit unions were far more responsive and able to secure approvals than big national banks. Of the many businesses we helped, not a single one secured a loan from a large national bank. Instead, we heard story after story of problems, delays and a mad search for alternate lenders.
I share all of this because now that funding has been restored, thousands of business owners who failed to secure funds in that initial 11-day window will once again be searching for help from many of the same overwhelmed lenders that couldn’t keep up before.
One hopeful development is that multiple non-traditional lenders in the FinTech space are now up and running. This may provide additional avenues for businesses who ran into challenges with their traditional banks.
The bill passed by the Senate on Tuesday would allocate nearly as much to restart the PPP as was allocated in the CARES Act – $320 billion. $60 billion of this funding will be set aside for small lenders in an effort to provide broader access to small businesses, especially those who don’t have established banking relationships. An additional $60 billion will go to the Economic Injury Disaster Loan program, with $10 billion for grants. The original $10 billion for grants was rapidly exhausted with many businesses failing to even receive a response to their application.
Our recommendation now is to identify a lender and get an application in as fast as possible. By some estimates, the new funding may be exhausted even faster than the first round. If you have a relationship with a smaller bank, it may be advisable to leverage that, if you don’t, FinTech companies like PayPal and Intuit appear to be ready to assist. Some PPP facilitators like Nav are advising firms to submit applications to multiple lenders to hedge their bets. In the aggregate, this will likely create more chaos, but for an individual business seeking support, it may make sense.
As always, we’re here to support you.
Chris and the HR Pros team.