The latest federal coronavirus aid package includes additional funding for the Paycheck Protection Program, which is intended to benefit small businesses. Despite replenishing the funds that ran out after the CARES Act was passed, owners of small businesses are still having trouble getting the relief loans.
The CARES Act classified small businesses as any company with fewer than 500 employees at any one location, and in two weeks the Payment Protection Program’s $350 billion was gone. The new law replenishes the Payment Protection Program with $310 billion, of which $60 billion is set aside for small businesses and minority-owned lenders. Minority- and women-owned entrepreneurs aren’t getting relief loans for their businesses, Entrepreneur Magazine reported.
The Small Business Association issued new guidance after large public companies got PPP loans.
“Banks of all sizes worked through the night to process PPP loans with little success,” American Bankers Association President Rob Nichols said in a tweet Tuesday morning. “Banks are still trying and counting on SBA and the U.S. Treasury Department to fix it so we can speed this aid to small businesses that desperately need it.”
On Monday, 22 senators urged President Donald Trump to make sure the new funding goes to the small businesses that need it most, CNBC reported. However, reports of backlogs and tech glitches in the second round of PPP loans raised concern.
So how do you apply for the new funding for your small business if you need it?
The SBA website states that the Paycheck Protection Program will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. To apply, provide an accurate calculation of your business payroll costs on the Borrower Application Form from the previous 12 months or from the 2019 calendar year.
As described in the Paycheck Protection Program Loans Frequently Asked Questions page here, your business is eligible if the maximum tangible net worth of the business is not more than $15 million, and if the average net income after federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million.
A seasonal small business like a pool cleaning company can also be eligible. The PPP FAQ explains seasonal businesses may use their average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019.
You don’t need to reapply if you have filed or been approved for a loan that had been based on the previously PPP Interim Final Rule published on April 2. Since Monday, processing has continued on a first-come first-serve basis, according to the SBA website.
Not sure what your business qualifies for? Here is a list of relief options for small businesses.
The payments to businesses and individuals are not actually considered to be a stimulus but are instead transfer payments, said Ed Hirs, lecturer in the department of economics at the University of Houston and inaugural University of Houston energy fellow.
“Think of it as Social Security on an incredibly large scale,” he wrote in an email Tuesday. “The payments are a stopgap and should help Texans just get by until we begin to recover from the COVID-19 recession.”
Texas Small Businesses
“The U.S. Small Business Administration indicates Texas has 2.7 million small businesses, representing 99.8% of all Texas businesses; furthermore, 4.7 million people in Texas are employees of small businesses, representing 45.1% of employees in the state,” University of Houston Supply Chain & Logistics Technology Program Director Margaret Kidd said Tuesday.
“Small businesses are a backbone of our state and regional economy,” Kidd said. “The problem here is there are more applications in the system vis a vis money available. The second tranche does not supply adequate amounts to businesses in need. This has been demonstrated at both the federal level and the regional level. Earlier in April, Harris County opened a portal for $10 million in loans at 2 p.m., and the applications received by 5 p.m. exceeded funding available.”
How Much Can I Get?
If you aren’t a numbers person, here’s some helpful insight from a webinar at Inc. provided by Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce.
It is a two-part test for loan forgiveness, Bradley says.
The first part is when you are trying to maximize your total potential loan forgiveness and you calculate it by adding up what you spend in that 8 weeks after you receive that loan. That’s the payroll, the rent, utilities, interest on your mortgage. Bradley says, 75 percent of the loan has to be for payroll. So if it’s $150,000, but only $75,000 is for payroll, then your maximum loan forgiveness is $100,000.
Next, you need to figure out whether that amount gets reduced. It can be reduced because you reduced your employees or workforce but if you haven’t restored them by June 30, Bradley says you will have a proportional reduction. Also, Bradley says, if you bring back your employees but then cut payroll, then you will also have a reduction in maximum loan forgiveness.
What Small Businesses Can Learn
Kidd offered an anecdote.
“One of my industry advisory board members owns a trucking company here in Houston. Her name is Marcia Faschingbauer, she is both president and CEO of Excargo. While she did receive some stimulus funding as a result of having a very strong relationship with her bankers, she shared with me earlier today, that this is the time when small businesses that did not have strong relationships with their bankers to now work on establishing them and to really focus on customer relationships.”
“Clearly, small-business owners need to take this pause as a result of slow economic activity and retune their business model. The light at the end of the tunnel is that many states are beginning to open up for business this week and in the coming weeks.”
Want to learn more? Inc., in partnership with the U.S. Chamber of Commerce, is hosting a virtual National Small Business Town Hall at 11 a.m. Central time Friday.