SBA Small Business Administration

Last week, Congress and the President approved an additional $310 billion for the SBA Paycheck Protection Program (PPP) as part of a $480 billion in additional coronavirus relief.

The SBA announced it will take applications again for PPP loans on Monday, April 27, at 10:30am EST.

Over the last week, the news has focused much on the problem of the program and some small business owners wonder if it is even worth the trouble.

Let’s look at what happened and why this second round of funding will be similar but different.

The SBA Paycheck Protection Program Loan Problems

The A.P. reported it identified 94 publicly traded companies that received $365 million in PPP loan money. Other reports identified large restaurant chains as loan recipients that have more than 500 employees in total, but because each location was under that threshold, they were able to qualify.

Furthermore, a class-action lawsuit claims that four of the biggest banks in the nation, JPMorgan, Bank of America, Wells Fargo and U.S. Bank, engaged in “loan shuffling,” prioritizing loans in favor of larger clients to collect higher origination fees.

While the initial funding for the PPP loan program officially ran out on April 16, likely, it happened much sooner due to the time it takes to process loans.

It’s fair to say that the SBA Paycheck Protection Program loan program as advertised by Washington has failed many small businesses. The big question going into the second round of funding is, will these problems be fixed?

Will Banks Prioritize Larger Customers?

While there is no actual proof that banks prioritized large customers over small customers, the public outcry is likely going to keep this practice down, if it happened.

On Sunday, Bank of America CEO Brian Moynihan said on CBS Face The Nation, “It’s clear that between Congress, the administration and the American people, we need to get all these funded and not make this a foot race. Just get the work done.”

Moynihan lamented om the first-come, first-serve aspect of the program that enabled larger “small businesses” to get to the lending door faster than small companies that needed time to understand and prepare documents.

“The difference between this program and unemployment is if you qualify for this program, it’s like getting unemployment authorization and then having a foot race to the office,” Moynihan said.

“We need to take away the first-come, first-served aspects of this and make sure it’s fully funded, because at the end of the day, it’s going to where people want it: small businesses, 25% in our case to businesses in low and moderate income neighborhoods, business with small numbers of employees. We just need to finish the funding and finish the work,” Moynihan added.

In essence, Moynihan is blaming the process of why so many larger companies received funding and making the case that it wasn’t a shuffling of loan applications at the bank level.

Regardless of who to believe, with lawsuits and heightened public awareness, it is likely the program will be administered on a “strict” first-come, first-serve basis. However, Moynihan is correct to say that businesses who are prepared have a fundamental better chance.

Will Large Companies That Don’t Need The Money Still Qualify?

After many public corporations were “shamed” for taking PPP loans, and several of them giving it back (although that money probably can’t be lent out again), at least public companies are probably going to refrain from requesting PPP loans.

It’s not worth the negative press that many received, and since these loans have to be publically disclosed following U.S. Securities and Exchange Commission (SEC) rules, there is no hiding them.

However, larger and well funded private small businesses can still qualify, and unless they come out and discuss it in public, no one will know.

The government defines most small businesses as companies with 500 or fewer employees, but the PPP had some exemptions, specifically the aforementioned restaurant exemption.

The SBA issued new guidance on Sunday that does make it a little more difficult for larger “small businesses” to tap into the PPP program as it now includes a new provision that companies who have access to other sources of money, will not qualify.

For example, public companies typically have access to capital markets by issuing more shares, would fall into that category.

However, the problem remains that companies only have to certify this information and there does not seem to be a “real-time” verification process. Therefore, especially private companies will be able to skirt this requirement easily.

Will This Round of Funding Last Longer?

Some reports indicated the first funding was exhausted within minutes because of the high volume of applications banks received when the program went live.

Officially, it was about seven days, but it takes time to process and receive funding approval from the SBA, which would account for the lag time.

It’s very likely that businesses that got their PPP application in on the first day did better than companies that submitted applications days later.

Banks are already warning this second round of funding won’t last but a few days.

“This is going to go within, at most, 72 hours,” said Consumer Bankers Association President Richard Hunt, who represents large banks. “But the odds are more like 48 hours.”

There is also the issue of PPP applications already in the pipeline that did not get submitted to the SBA when the money ran out.

“With the period of time that bankers have had since the funding was exhausted, lenders have either gotten rid of their backlog, continued to work with customers or have figured out how they want to work within this program,” said James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association. “The additional funding is likely to move even faster than when the program was in its infancy stage.”

Will Congress Appropriate More Funding?

That’s the Trillion Dollar question as banking industry representatives believe it would require about $1 trillion in total to satisfy the demand for PPP loans. Round 1 and 2 make up about 2/3 of the estimated requirement.

Politics are starting to play a more prominent role now as it took about two weeks to get a consensus in Congress on the second round of PPP loan funding.

With a Federal Budget deficit approaching $4 Trillion in 2020 due to the coronavirus stimulus and political factions positioning for other forms of aid, especially more direct payments to Americans, it’s highly doubtful there will be a third round of PPP funding quickly, if ever.

Should I Even Bother to Apply for SBA Paycheck Protection Program Loan?

Yes. There is no reason not to apply, even if it ultimately does not work out. The only guaranteed way a business doesn’t get a PPP loan is by not applying.

While it almost appears to be a lottery, many business owners have been saved by the PPP loan and it’s worth the try! Small business owners should not give up just because the program is flawed.

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