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Your Ad Agency Got an SBA Relief Loan - Now What?

Per our Small Agency Financial Assistance Survey of Second Wind member ad agencies and marketing firms, 92% of respondents applied to the Small Business Administration’s (SBA) Paycheck Protection Program for COVID-19 relief loans.

Eighty-eight percent of those agencies applied within the first five days of the April 3 PPP launch, and 88% percent of those who applied for assistance were approved for loans. That is a very good return, given the widespread reports of problems small businesses encountered in finding a helpful bank, successfully submitting applications and having good communications with lenders following application.

Five percent of responding agencies also said they had applied for SBA Emergency Disaster Relief loans (EIDL). That program was closed due to funding running out. But dire April news coverage of problems with the PPP belie that many small businesses were successful in applying for loans… even if many are also still waiting for those funds to arrive.

Even with a second round of funding available, the U.S. Treasury Department instructed the SBA to prioritize farm and agriculture applications, and limit how much per business they will dole out to approved applicants.

More About Our PPP Loan Survey

Just 21% of smaller agencies applied for PPP loans through a national bank; 43% used their local or community bank, and 29% a regional bank. While 39% reported no issues with the application process, 24% said their bank was “not responsive,” 26% said the online application process was “not available” when they tried to apply, and 17% had applications returned due to missing or inaccurate information.

Individual agencies reported their banks were disorganized, communicated poorly, or could not answer questions. One agency with a 20-year relationship with a national bank branch was so upset by the poor support, they applied through a community bank that successfully submitted their application on day one, and gained approval the following Monday. The agency has now moved all of their banking to that smaller bank.

Among agencies that initially did not apply for a PPP loan, 50% said they had enough cash reserves to get through without a loan; but 14% didn’t act fast enough, 15% said they didn’t choose the right bank to work with, and and the remainder said funds had run out before they could apply.

You can see the complete Small Agency Financial Assistance Survey here.

As Crisis Rolls On, New Worries

Problems loom even for businesses that received PPP loans. The New York Times reports that loan forgiveness is dependent on sticking to very strict rules for how the loans are used. Following news that some large, publicly traded companies acquired large PPP loans through a loophole allowing individual locations of large companies to file as separate businesses, the Treasury Department keeps changing the rules. Those after-certification changes may be illegal. Lawsuits have already been filed.

Elsewhere, the Independent Community Bankers of America (ICBA) has asked the Treasury to allow half of PPPs, not the original 75%, to be used toward employee payroll. In many states, employees have opted to file for unemployment rather than continue working at low pay scales, and shuttered businesses now need more help with basic business expenses like rent and utilities. For many small businesses, even reopening will not deliver relief, as their customers (and employees) continue to stay away from venues unable to ensure social distancing or provide protective equipment for workers.

As lockdowns in many states are extended, PPP loans required to be used within the eight weeks from when the funds were received will run out… meaning that many businesses may still have to close or lay off employees, jeopardizing the terms of the loan and requiring closed businesses to pay that money back.

Many ad agencies are already facing decisions on layoffs and terminations. Per our PPP Loan Survey, 35% of agency respondents say they have instituted owner and manager pay cuts or agency-wide salary reductions, and 27% had to lay off at least some employees. Other agencies are already looking ahead eight weeks to plan what they will do when emergency loans expire. In the United Kingdom, where the government has set up emergency small business funding and a furloughing scheme similar to the SBA/PPP, Design Week reported that 89% of design businesses have furloughed or are planning to furlough staff. Nearly one in five contemplated cuts of 10%, while 4% reported they may have to cut as much as 50% of their people.

Because our federal government didn’t mandate a nationwide shutdown, and individual states are already reopening shuttered businesses, the U.S. situation is far less clear. Per our own and other industry surveys, every smaller agency is facing unique circumstances based on client mix, industry niches and in-the-moment desirable expertise.

Alternative Funding Possibilities

There are alternatives to SBA loans, including grants and state-managed SBA relief programs. Payroll and benefits management firm Gusto compiled a list of small business resources by state that agency owners may want to check out. The shared spreadsheet is posted on Google docs and is being updated regularly.

What about insurance help? It turns out that most business insurance policies will not cover an event like COVID-19.

Many business owners may not realize their policies contain a “pandemic exclusion” preventing the filing of business interruption claims during the COVID-19 crisis. Many insurance firms added this clause 17 years ago, following the SARS outbreak. Another wrinkle is that many businesses have been forced to close under government-ordered shutdowns, not because they had too many sick employees, or from other direct effects of COVID-19 on business operations, giving insurance underwriters another out. The insurance industry could be bankrupted if courts favor businesses in their claims for COVID coverage.

Check with your business insurance provider. Even if your policy does not have a pandemic exclusion, be prepared to fight to get help from insurance companies. A Business Insider article notes that failure to file a claim promptly may be enough to trigger denial of a later claim. File now or you could be automatically denied should you try to file a claim later on.

The uncertainty brought about by a global pandemic seems likely to be with us for a long time. Disruption is our new normal, and challenges for small business owners will continue; for some they may worsen. Please make full use of our COVID-19 Help page resources, and please call if you need to talk. In crisis there is also opportunity.

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