As the coronavirus crisis has continued to wallop small businesses, small business owners now have a second chance at getting a loan that could help them keep their companies afloat and pay their employees. After Congress approved it, President Trump signed into law a relief package today that includes a fresh funding round – an additional $320 billion – for the Paycheck Protection Program.
Small business owners left out of the first round of the Paycheck Protection Program, or PPP, would be wise to try again — and the sooner they act, the better their odds of receiving help may be.
The application process is expected to open up as early as Monday morning.
Also, as part of the new legislation, the SBA’s Economic Injury Disaster Loan program (EIDL) is receiving an additional $60 billion — $50 billion in loans and $10 billion in grants — to lend to small businesses at low interest rates and can cover expenses like payroll and rent. The grants do not have to be paid back.
For both funding programs, “we anticipate that the SBA will begin accepting applications again early next week and that funding will go quickly, so we are encouraging our state’s small businesses to prepare to apply,” said Michael W. Myhre, CEO of the Florida SBDC Network, the state’s principal provider of small business assistance.
Here’s what small business owners need to know about the Paycheck Protection Program’s second round.
How to apply
Small business owners who have not yet applied for the Paycheck Protection Program should apply through an eligible lender, like a local bank. The U.S. Small Business Administration has a list of eligible lenders that you can view here.
Experts advise that business owners should apply through banks they have a corporate account or have taken a loan from because banks may give preference to their existing customers and vetting new customers takes time. In the first round of funding, smaller community banks typically reacted faster, according to reports from South Florida entrepreneurs who applied.
Applicants will need to submit a SBA Form 2483 (Paycheck Protection Program Application Form) and payroll documentation; more information can be found at the SBA’s FAQ page.
For the EIDL, apply through the SBA portal once it reopens for applications.
What’s new
Most of the details of the program stay the same. But to try to ensure that more funding gets to small businesses that truly need it, including ones that may not have pre-exisiting relationships with banks, the new bill targets $60 billion to small and mid-size banks, as well as credit unions, with about $30 billion set aside for community-based lenders, including Community Development Institutions and Minority Depository Institutions. In the first round, chains owned by publicly traded companies such as Ruth’s Chris, Shake Shack and AutoNation getting funded caused an uproar, and in those three cases, they reportedly are giving the money back.
In updated guidance published April 23, the SBA said that companies that apply for PPP loans must certify that they have a real need for the money. “It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification,” the SBA said.
Loan limits
Businesses with up to 500 employees can receive a loan for 2.5 times their monthly payroll costs, up to $10 million. The loan can be forgiven if businesses use at least 75% of the forgiven amount for payroll, and if the money is used for payroll, interest on mortgages, rent and utilities. Whatever is not forgiven turns into a 1% loan for 2 years and the first payment is deferred for six months.
Experts believe the funding will go fast. In the first round, the $350 billion in funding was exhausted within two weeks, and some bankers are saying the money may be exhausted in a week or less. Businesses that do not have a preexisting relationship with a bank or are slow to apply to the program could be left out again.
The needs are huge. Since the passage of the CARES Act, nearly 70,000 small businesses in Florida have received $655.9 million in loans through the EIDL program, including $272.7 million in Emergency Advance Grants, and 88,997 Florida businesses have received $17.9 billion from the PPP, according to the Florida SBDC Network.
Help is available
“According to a recent study by Thryv and America’s SBDC, 49 percent of U.S. small businesses say they can only survive one to two more months if they are not allowed to reopen in early May,” added Myhre. “These loans are important, however more than half (57 percent) of small businesses indicated they experienced issues when applying. At the Florida SBDC, we are committed to doing all we can to help small business owners access this and other emergency assistance they need to survive.”
The Florida SBDC Network recently developed a guide to help small businesses understand available federal disaster loans and provide tips for impacted businesses to do right now to stay afloat. Professionally certified consultants and other centers around the state can help affected businesses understand available disaster assistance and loans, determine eligibility, prepare loan applications, as well as navigate other post-disaster challenges, Myhre said.
Apply early
The PPP program is only intended to cover payroll costs for eight weeks, and it remains unclear how long many businesses will remain closed amid the COVID-19 outbreak. Some experts also say that PPP may be less helpful for extremely small businesses with only a few employees, especially if they spend more on costs like rent rather than payroll. For some businesses impacted by COVID-19, the SBA’s EIDL program, which received more funding on Friday with the law’s signing, may be more appropriate. Businesses can apply to both programs but need to heed the restrictions on use of funds.
Most businesses that applied for PPP in the first round and did not get one should not need to re-apply. However, small business owners should contact the bank they’re working with to double-check that their documents are in order and the status of their application.
If you applied in the first round and your bank has been non-responsive, it may be worth applying to another financial institution even if you aren’t an account holder (opening an account may help). We have heard of small businesses getting loans through smaller community banks even after they didn’t hear from their regular bank. For example, Pilar Guzman Zavala, owner of HalfMoon Empanadasm, applied to her bank, Bank of America. After some initial response that her application was received, she heard nothing for 10 days. So she applied to US Century Bank of Miami and she said she was approved in the same day. And with the set-asides in the new law, smaller lenders may have more money to lend.
“We have been advising businesses who applied later to a big bank or are not hearing back on a status to go to a community bank or credit union. We have seen more responsiveness from the local banks and the next round of funds has about $60B set aside for those institutions as well as CDFIs,” said Brian Van Hook, Regional Director of Florida SBDC at FIU.
Tips from bankers
Jorge Gonzalez, CEO of City National, a community bank, said the bank will end up funding about $2 billion in PPP loans, about a full year’s worth of lending in three weeks. “Our team has been working around-the-clock, from home and in the midst of a pandemic and economic crisis, to process more than 6,000 applications on behalf of businesses seeking relief — clients and non-clients alike,” he hold the Miami Herald.
South Florida bankers also been offering some advice. In an informative article in the Sun-Sentinel, Jeni Chokron, a senior VP of First Horizon, reminds applicants to use their legal name as it appears in the corporate records you filed in the state. She also says page 3 of the application tells you how to calculate your numbers — follow the rules and make your numbers easy for bankers to find in your sourcing documents. Another common mistake is including contract workers, your 1099 workers, in your payroll calculation — don’t do it. Find more tips in the article here.
Small businesses like Holliday Cleaners in Fort Lauderdale are hoping for the best in round 2. He applied for a PPP loan in the first round but didn’t get one. “The big guys got it first and now they’re going to try to hit the little guys. That’s basically what they are telling me,” said owner Tim Holliday. He closed one of his two dry cleaning locations and had to lay off seven employees.
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