The Waiting Game
It has been a full week since the $349 billion Paycheck Protection Program (“PPP”) was launched on April 3, 2020. Over the past week, millions of small business owners from across the country have applied for PPP loans by contacting national and local banks. In fact, the lending initiative has already drawn so much interest that Congress is considering expanding the program with an additional $250 billion in funding. This additional funding should be encouraging for small business owners who are eagerly awaiting a response from the SBA.
When the program first launched, the vast majority of banks—both big and small—were confused about what role the borrower, lender, and SBA played in the lending process. Once additional guidance was issued, the race to submit applications officially began. As of April 10, 2020, reports from the SBA show that approximately 600,000 loans and nearly $161 billion have been approved. This means that approximately a third (1/3) of the total funds allocated to the lending program have already been accounted for. However, this also means that it is not a lost cause to still apply, especially in light of the possibility for Congress to allocate more funds to the program.
Even though the program has experienced some early success, lending institutions are still asking the U.S. Treasury Department and SBA for more guidance. Because the lending initiative was announced and implemented so quickly, many banks are still trying to catch their breath and make sense of some of the more nuanced details of the program as it unfolds. However, if there is anything this past week has taught us, it is that small businesses are hurting, and the economic viability for many depends on the success of their PPP loan applications.
Even after the waiting period is over and your application is successfully submitted and approved, it will be very important for small business owners to think strategically about how to spend their loan money. We know that, among other things, in order for the loan to be fully forgivable, 75% of the loan must be used on payroll, while 25% can be spent on rent, mortgage interest, or utilities. However, details regarding the forgivable amount of non-payroll expenses are still not entirely clear. Many believe that up to 25% of the forgivable amount can be spent on non-payroll expenses. In other words, if you do not have any forgivable payroll expenses, then nothing is going to be forgiven.
Many small businesses that apply for PPP loans are also simultaneously applying for an Economic Injury Disaster Loan (“EIDL”). While the SBA initially stated that the disaster lending program could provide eligible businesses with up to $2 million in loans, it appears that most disaster loans will be capped at $25,000 to $30,000. If this is true, then small business owners should consider reevaluating their business loan strategy.
While much has happened with the PPP loans over the past week, there are still a significant number of loans waiting to be approved. If you are a small business owner, do not think that since you are “late” to the game, then it is not worth applying. The federal government is doing everything it can to protect and save America’s small businesses. You should still seriously consider taking them up on their offer.