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On Tuesday, the Senate approved an additional $310B of funding for the popular Paycheck Protection Program (PPP) loans for small-business owners, and the House is expected to approve the measure as soon as today.
The original bill passed passed on March 27 and established $349 billion in funding for PPP loans, but that money evaporated in just two weeks. Consequently, many business owners were left unfunded or were unable to find a bank that would even take their application. This additional $310 billion will go much more quickly than the first round, as the pipeline is full of those who applied and missed out initially, as well as others who have since located a bank willing to take their application.
The limited funds have unfortunately created some winners and losers in the race for PPP dollars. One reality is that the smallest of small businesses have faced the biggest uphill battle. The National Small Business Association conducted a survey of 980 small-business owners between April 15-18, revealing that 52 percent of small businesses with 20 employees or more received approval for their PPP loan, while only 18 percent of those with 10 or fewer employees received approval.
Here are a few key nuances of the new round of funding, as well as guidance on how to ensure you get your share.
Related: New Stimulus Bill Unlocks IRA and 401(k) Dollars for Financially Affected
What to Do If You Missed Out on Round 1 of PPP
You'll need to get ready immediately for round two, as these funds will go even faster. (For details on getting your application ready and calculating the loan amount, refer to my prior article here.) One lesson learned in the first round of PPP loan funding is that the community banks and smaller credit unions have been more responsive to the traditional "small" business owner. My law firm has consulted more than a hundred clients on PPP loans, and one trend we have noticed is that clients who work with community banks have had more success in getting their PPP loans approved and funded.
A couple of examples from two small-business owners with fewer than 10 employees is illustrative of what's going on. A landscaping and maintenance company client in Midland, TX banked with a small community bank, Community National Bank, and was able to get his PPP loan funded by within five days after his application was submitted. After hearing other business owners complain of getting no feedback or response from larger national banks, he chose the community bank where he had an account and knew some of the staff. Another example would be a building-contractor client in Salt Lake City, Utah who was not even allowed to apply and was instead put on a wait list to submit their PPP loan by Wells Fargo, their regular bank. But instead of waiting, the business owner chased down an old friend who was a branch manager at a small credit union to see if they could assist. The credit union had the PPP loan approved and funded within three days. Wells Fargo, who had regulatory issues in issuing PPP loans past $10 billion, still was not even taking applications at this point.
If you have a pending PPP loan application at a large bank where you have no idea of the status, or if you have not even applied yet for PPP, you should consider using a community bank or smaller financial institution instead and should get your application submitted before the House votes on Thursday, as I would expect the newly approved funds to be gone within a matter of days.
$60 Billion Set-Aside for Community Banks and Smaller Credit Unions
One important provision of the new funding measure is that $60 billion is specifically set aside for community banks and smaller credit unions. Specifically, $30 billion is set aside for financial institutions with $50 billion to $10 billion in assets and another $30 billion is set aside for financial institutions with under $10 billion in assets. This makes the community banks and smaller credit unions even more attractive places to obtain a PPP loan, as the larger banks may claim the other $250 billion within a day or two of the SBA opening back up their E-Tran System to get PPP loans approved. It's quite possible that the community banks and smaller credit unions may still be processing loans after the large banks tap the $250 billion they can allocate from.
Additional $10 Billion For Economic Injury Disaster Loans
The new funding measure approved by the Senate also includes an additional $10 billion for the Economic Injury Disaster Loan (EIDL) program. EIDLs are typically issued in the aftermath of natural disasters such as hurricanes, fires or earthquakes and provide a $10,000 immediate grant to small businesses that have been financially impacted, as well as low-interest loans up to $2 million. Given the overwhelming demand for the $10,000 grant and EIDL loan, the SBA last week limited the $10,000 grant to be paid to businesses based on a $1,000-per-employee formula up to 10 employees.
By moving to a per-employee calculation, the SBA left out many small landlords and rental-property owners who do not have payroll and could not participate in PPP and were counting on some assistance from an EIDL. It is unclear at this point how the SBA will use the additional $60 billion for the EIDL program. Presumably, they will use it under the same $1,000-per-employee methodology put into place last week, but there have been no announcements yet.
Related: How to Obtain an SBA PPP Loan and Have it Forgiven
The PPP is still the best stimulus option for small-business owners to keep their employees on payroll. The demand for funds shows how necessary the initiative is and how badly small-business owners are being affected. These funds will run out, and they are first-come, first-serve, so make sure your application is submitted and ready to approve before the SBA opens back up for funding.
