Billions of PPP loans go untapped by small businesses
US President Donald Trump speaks surrounded by Small Business Administration Administrator Jovita Carranza, Parliamentary Minority Leader Kevin McCarthy (R-CA), Representative Steve Scalise (R-LA) and Senator Dan Sullivan ( R-AK) at a signing ceremony for the Paycheck Protection Program and Health Care Enhancement Act, approving additional relief from coronavirus disease (COVID-19) for the US economy and hospitals treating sick people pandemic, in the Oval Office of the White House in Washington, April 24, 2020.
Jonathan Ernst | Reuters
In 14 days, the Small Business Administration processed 14 years of loans, in the first funding cycle of the Paycheck Protection Program. The second round was a whole different story.
After a rush to replenish the program with $ 310 billion in additional funding, the second round of funding began on April 27. More than a month after the second round, there is over $ 120 billion unallocated for small businesses.
Compare that to the first round, where in less than two weeks, during an unprecedented economic crisis, more than a million loans represented some $ 350 billion in funding.
As of May 30, 4.4 million loans had been granted in the two cycles of the PPP program for a total loan value of 510.2 billion dollars.
The amount is lower than what was last reported by the agency a week earlier. ASB said totals reflect cancellations, including duplicate loans, loans not closed for any reason, and loans that have been repaid.
The SBA declined to comment on the request for the program.
Since the average loan amount has dropped since the first round of financing, to $ 114,000, some say the capital is reaching real small businesses. But the question remains: why did the demand for financing slow down in the second round, when many small businesses are still suffering?
There are things at stake on Main Street, according to Richard Hunt, president and CEO of the Consumer Bankers’ Association. He cited potential audits for companies accepting loans, rising unemployment that can make it difficult for companies to attract workers to work, and duplicate claims, which cancel each other out, as factors as factors. .
Some companies are also probably concerned about following the law as it is written in order to get the loan canceled.
Small business borrowers must spend 75% of the loan on payroll and the remaining 25% on other expenses such as rent and utilities, and use the loan within eight weeks of disbursement, among other rules, in order to to avoid reimbursement, which means they may be reluctant to apply.
“The fear factor is real,” Hunt said. “Maybe the 75/25 formula was too high, and the rules are too complex.”
The CBA is asking Congress to cancel loans under $ 150,000, in part to encourage small businesses to borrow and start using the money. He added that such a move would save more than $ 7 billion and tens of millions of hours of paperwork. A letter advocating the change said in part: “This threshold would represent 85% of total PPP recipients, but less than 26% of PPP loan dollars. Lenders would continue to meet the PPP requirements provided by the SBA for these loans, but the loan cancellation process would be faster for these small businesses. ”
Hunt said that while borrowers have received the loan and may be waiting to use it, further potential Congressional changes to the 75/25 formula and loan usage period are unlikely to encourage more loans in the second round.
“If I was a small business owner and knew my livelihood was on the line, I would have applied already,” he said. “I don’t see a massive bank rush because some rules are changing.”
Data from a recent survey by the National Federation of Independent Businesses of its members shows that most small businesses interested in lending have already applied for it. Depending on the results, those who do not apply may not be able to use the loan easily or simply not realize that they are eligible for the program.
First-round nominations and demand were also developing differently, said Kevin Kuhlman, NFIB vice president of federal government relations. The replenished funding has allowed companies on the margins to think about what help might be needed.
“Everyone knew the first round would go fast, and everyone was encouraged to borrow the maximum amount – it was first come, first served and there may not be more to come,” Kuhlman said. “Everyone took a collective deep breath in the second round when the funding arrived.”
Changing directions may also have kept some companies away. The SBA and Treasury have issued new or updated guidance a dozen times since the program was put in place on remission, audits, eligibility, etc. Beyond that, taking out such a loan might not be a worthy endeavor for small businesses who don’t know what the future holds.
“There is no doubt in my mind that PPP restrictions have dampened demand,” said Karen Kerrigan, president and CEO of advocacy group The SBE Council. “Many will receive minimal pardon, and given the uncertainty of the economic recovery and when many can reopen, business owners fear for their survival and do not want to take on more debt.”