Roberto Castellon is a consultant at Florida SBDC at FIU who has been helping about 80+ small businesses hurt by the COVID-19 crisis apply for forgivable loans through the government’s Paycheck Protection Program over the past three weeks. That includes fielding the small business owners’ questions nonstop and learning about their experiences applying for the relief loans – what has worked and hasn’t worked. Now that round 2 of the PPP is open – the government refunded the program with another $320 billion — we can learn from their experiences, too.
Castellon has seen many more clients successfully get the PPP loans, which small businesses apply to through a participating financial institution, than the SBA’s Economic Injury Disaster Loan (EIDL) Program. He has seen only two EIDL loans actually funded out of some 80+ clients. He has seen more money go out for the EIDL’s grants – about 15 have gotten the $10,000 advances, he said.
The SBA was not yet accepting new applications for the EIDL when this post was published. Its website currently says: “SBA will resume processing EIDL Loan and Advance applications that are already in the queue on a first come, first-served basis.”
Small businesses have had much more success with the PPP program, especially ones who applied through community banks rather than the big banks. And banks and financial institutions are accepting new applications. Overall, Castellon said, “the PPP has been a resounding success.”
Also, in round 2 of the PPP, there is $60 billion set aside for smaller institutions to lend and a much wider group of financial institutions are involved, including all kinds of credit unions, the online lender Kabbage, PayPal, American Express, etc. It’s opened up the field to the benefit of the borrower and many of these institutions don’t care if you are an existing customer, he said. Furthermore, the banks know what to expect in the second round and should be more prepared for the deluge. We’ve included information in our first post on round 2 here.
Today we bring you some more of Castellon’s insights:
Q. If I applied to my bank in the first round, do I need to apply again or am I in the queue?
A You should be in the queue, and you should have gotten a communication from the bank acknowledging that you are awaiting funding.
If you didn’t get that communication from your bank, (or even if you have – see next question), you may want to apply to another financial institution. Clients have had more success with smaller institutions.
Q. Am I permitted to apply to multiple banks or financial institutions?
A. The SBA guidance doesn’t specifically address that, but Castellon had a client who applied to four banks, so people are doing it. Banks are telling clients it is OK to apply to multiple banks as long as they accept the first one they are offered, he said.
Q. Are there any key changes in the new PPP offering that small businesses should know when applying?
A. It’s basically the same. W2s qualify, and the business’s average monthly wages, not 1099s, based on 2019 is multiplied by 2.5. For the loan to be forgiven, 75% of that has to be used for payroll, the other 25% you can use for rent, utilities, things like that. To prove it, you need to show your cancelled checks as well as your 940 report, the one you track your payroll with, and show that at least 75% of those monies were used for payroll.
He is advising clients to open a new, separate account for the PPP money to make is a lot easier to show the monies were used for the appropriate purposes.
Q. What questions are you hearing most often from small businesses?
A. For the EIDL program, clients are frustrated because they haven’t heard anything – I’m not getting any answer, what should I do? Where can I check?
If they applied with the short streamlined form, which includes the option for the $10,000 advance, it generates a loan number. That means you are in line. (Those people who applied in the first few days of the EIDL program may have applied with a long complicated form requiring a lot of documentation before the SBA revised the application process. Castellon advised them to reapply with the short form.)
For the PPP, the most frequent question is, are 1099 payments part of the PPP? The answer is no.
Q. What’s your top advice for a small business applying for the PPP round 2?
A. Apply right away because the first round was gone in about 10 days, although he does note there are more financial institutions involved in round 2, which should help. And be patient.
READ MORE on Growbiz: Second chance for PPP likely to open Monday and it won’t last long