Paycheck Protection Program: Chapter Two
The Paycheck Protection Program was launched by the Small Business Administration on April 3 with much fanfare and many problems. The program, which was designed to address the devastating rise in unemployment caused by the coronavirus pandemic, offered businesses with 500 or fewer employees an opportunity to access highly-favorable, government-backed loans.
Glitches in the program became apparent almost immediately. While guaranteed by the government, PPP loans are administered by private lenders. Lenders were reluctant to sign on to the program because initial government information on the loans was vague and the terms of the loans were revised at the last minute. Originally slated to allow businesses to borrow at a rate of 0.5% for 10 years, the final rate offered was raised to 1.0% and the term was shortened significantly to two years. Still not a bad deal – if you could get it. But the government was unable to onboard partners quickly due to lenders’ concerns about their financial exposure in the event that borrowers defaulted on their obligations. IT issues also plagued the program. The overwhelming demand for PPP loans caused many lenders to stop extending them within a few days of the program’s launch. Finally, a troubling trend emerged. Lenders were reluctant to issue loans to businesses they hadn’t done business with previously. So many small businesses – perhaps those that needed assistance the most – were shut out of the program because they didn’t have established credit relationships. Newer businesses and startups were especially disadvantaged.
To add insult to injury, the PPP ran out of money about a week after it was launched. And recent reports on who actually borrowed money under the program are disturbing. Large corporations and franchises were able to borrow money by exploiting loopholes in the regulations.
After weeks of contentious congressional negotiations, the PPP is again up and running, to the tune of an additional $310 billion. But there are signs that even this shot in the arm won’t keep the program going for long. So small businesses in Worcester County seeking PPP loans would be well-advised to apply quickly to prevent being left out again.
Here’s a brief summary of what you need to know about applying for a PPP:
Companies with 500 or fewer employees are eligible to apply.
Sole proprietors and independent contractors are considered small businesses under the PPP’s definition.
Seasonal businesses can apply for loans if they can document that they were in business between February 15, 2019 and June 30, 2019.
PPP loans are eligible for forgiveness, so long as borrowers comply with all regulations set out by the SBA. The actual forgiven amount may vary.
If your business is in need of fast cash, the PPP may not offer the solution you’re looking for. Small business owners in Massachusetts are reporting frustration as the PPP application process alone is taking weeks. If speed is a priority for you, as it is for many businesses that have already fallen behind in their rent and utilities, a private small business loan might better address the urgency of your situation.
It should be noted at the outset that private small business loans don’t feature a forgiveness clause. But the best small business loans offer borrowers greater flexibility. Your business may qualify to borrow more money for a longer period of time under a private loan as compared with a PPP loan. The application process for a private loan will likely be much shorter and you’ll receive your funds more quickly. That’s because lenders make more money on private loans than on PPP loans, so they’re more anxious to process them. Still, you might find the rates lenders are currently offering quite favorable. The Federal Reserve Bank has lowered the rate at which banks can borrow money and some of that savings might trickle down to you. Locking in a low-rate loan now might be a smart move. And as the coronavirus has taught us, establishing a relationship with a lending institution is a prudent long-term strategy. Someday, it could save your business’s life.
Susan Doktor is a journalist, business strategist, and long-term Massachusetts resident. She covers a wide range of topics including finance, technology, real estate, and consumer products for Money.com. Here is Money's list of the best small business loans for 2020.
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