Of the several emergency relief bills enacted by Congress in response to COVID-19 business impacts, the Small Business Administration’s Paycheck Protection Program has suffered many notable problems. From loans being issued to publicly traded companies and large chains instead of true small businesses, to banks steering funds to bigger clients in exchange for larger commissions, administration of the PPP loans has excited as much criticism as thanks from the small business community.
Shortly after the initial round of funding ceased due to lack of funds, new problems came to the fore. Specifically, the notion that the COVID-19 crisis would be of short duration had to be abandoned, making the initial PPP loan terms immediately difficult for small businesses likely to need assistance over a longer period. Under the original CARES Act terms, loan forgiveness required loans to be used mostly to cover employee payroll, and required businesses to use it within eight weeks of receiving the funds.
As a result, many business owners proceeded with caution into the second round of PPP funding. Over 40% of emergency small business relief funds were still available two weeks after the applications process resumed.
After Delay, Congress Improves PPP Terms
PPP loan terms were just extended from covering eight weeks of employee payroll to 24 weeks. The bill also reduced from 75% to 60% the percentage of the loan required to be used to cover payroll; gives businesses more time to rehire laid-off or furloughed employees; extended loan payback terms; and allows for businesses eligible for loan forgiveness to defer payroll taxes. The new bill was signed into law on June 5, 2020.
While many states have reopened after two-to-three-month shutdowns, other states are just starting to see cases rise. That means new applicants may begin seeking PPP loans. If you need a loan, contact a local lender and apply now. (Second Wind members report they had better response from local lenders vs. national banks.)
For businesses that already received loans, now is a good time to check back with your local lender to make sure you are able to comply with terms allowing loan forgiveness, or have a good idea when you may need to repay the loans.
Keep in mind that the COVID-19 crisis is anticipated to cause disruptions and possible rolling shutdowns through the summer, and possibly into the Fall and Winter months of 2020. Keep a close eye on agency financials and consider carefully before applying for a relief loan. Government assistance always comes with strings attached, and the speed of relief roll-out created as many questions and uncertainties as relief. Make sure you understand loan terms and don’t put your agency in a position of having to pay back a relief loan just when you are dealing with other financial impacts on your business operations.
Also remember that most states have created their own relief programs, or may offer small business grants and programs you could find more useful and less problematic than SBA emergency loans.
Keep in touch with our Second Wind team about how you are coping. We are happy to lend advice and counsel.