After months of Congressional negotiations and a delay of his own in agreeing to the measure, President Trump on Sunday signed into law a $900 billion stimulus package that prevents the government from shutting down, enables unemployment benefits to continue, extends a moratorium on evictions, and offers a desperately needed lifeline for struggling small businesses.
The passage of this Economic Stimulus bill is a metaphorical shot in the arm for small business owners who have suffered disproportionately during the COVID pandemic. It renews the Paycheck Protection Program (PPP), created as part of the March 27 CARES Act that aided millions of American small businesses until PPP expired on Aug. 8. The renewal of this program now comes at a time when many small businesses are barely able to survive as the pandemicâ€™s second wave sweeps the country and as local governments enact measures aimed at stopping its spread.
PPP Second Draw
The so-called â€œPPP Second Drawâ€ is intended to provide loans with a maximum amount of $2 million for smaller and harder-hit businesses that previously applied for and received PPP funding. Companies seeking to secure this funding must employ less than 300 employees and must have already used (or intend to use) the full amount of money granted in their first round of PPP funding. They also must demonstrate at least a 25% reduction in gross receipts during the first, second, or third quarter of 2020 relative to the same quarter of 2019. An eligible organization may only receive one PPP second draw loan.
The legislation includes economic aid to minority-owned businesses and nonprofits to help them recover from the pandemic.Â The deal includes over $284 billion for forgivable PPP loans and dedicates set-asides for very small companies and lending done through community-based lenders like Community Development Financial Institutions and Minority Depository Institutions.
Â·Â Â Â Â Â Â Â Â $15 billion for PPP loans (initial and second draw) issued by community development financial institutions (CDFIs) and minority depository intuitions (MDIs) and $15 billion for PPP loans (initial and second draw) issued by certain small depository institutions.
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Â·Â Â Â Â Â Â Â Â $35 billion for first-time PPP borrowers, $15 billion of which for smaller, first-time borrowers with 10 or fewer employees, or loans less than $250,000 in low-income areas;
Â·Â Â Â Â Â Â Â Â $25 billion for second draw PPP loans for smaller borrowers with 10 or fewer employees, or loans less than $250,000 in low-income areas.
Â·Â Â Â Â Â Â Â Â $25 million for the Minority Business Development Centers program under the Minority Business Development Agency (MBDA);
Â·Â Â Â Â Â Â Â Â $57 million for the Microloans;
Â·Â Â Â Â Â Â Â Â $50 million for PPP auditing and fraud mitigation purposes.
This deal also includes $15 billion in dedicated funding for live venues, independent movie theaters, and cultural institutions, which have seen their attendance reduced to zero, or close to it, for many months. After 25 days, the SBA Administrator may adjust the set-asides, as necessary.
These changes are designed to impact truly small companies since many mid-sized firms and larger corporations were able to secure funding during PPP’s first round while the smallest companies were shut out. The new legislation also has expanded the allowable expenses and forgivable uses for PPP funding. These include:
Â·Â Â Â Â Â Â Â Â Money spent on software, cloud computing, human resources, and accounting needs.
Â·Â Â Â Â Â Â Â Â Costs related to property damage due to public disturbances that occurred during 2020 and were not covered by insurance.
Â·Â Â Â Â Â Â Â Â Supplier costs that are essential to the recipientâ€™s operations at the time at which the expenditure was made. For instance, restaurantsâ€™ purchases of perishable goods can be made before or during the life of the loan.
Â·Â Â Â Â Â Â Â Â Personal protective equipment and adaptive investments that help a PPP loan recipient comply with federal and/or health and safety guidelines related to COVID-19.
Â·Â Â Â Â Â Â Â Â The hard-hit Accommodations and Food Services industries (hotels and restaurants) may receive loans of up to 3.5 times their average monthly payroll costs.
The exceptions are those borrowers who have already had their PPP loans forgiven.
For small loans of $150,000 or less, the borrower may submit a certification attesting that the organization meets the revenue loss requirements on or before the date the entity submits its loan forgiveness application. PPP Second Draw borrowers would be eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent, and utility payments, along with the expanded covered operations expenditures, property damage costs, supplier costs, and personal protection expenditures incurred during the covered period. (The 60/40 cost allocation between payroll and nonpayroll costs in order to receive full forgiveness will continue to apply.)
A lender approved to make PPP loans may provide funding under the same terms and conditions as the initial loans. Fees have been are waived for both borrowers and lenders to encourage participation. Lender are reimbursed by a tiered structure: For funding requests up to $50,000, the lender processing fee will be the lesser of 50% of the principal amount or $2,500. For loans between $50,000 and $350,000, the lender fee will be 5%, and for loans of $350,000 and above, the lender fee will be 3%.
An important part of this stimulus package is the prioritization of underserved communities. Access to capital for underserved communities should be no later than 10 days after enactment.
One fear has been that this government-backed money could be going to companies that might go under anyway. These small businesses, in most cases, didnâ€™t do anything wrong, and their situation is not their fault. Rather, the coronavirus itself, government-imposed restrictions, and the â€˜stay-at-homeâ€™ mentality has hurt businesses that catered to commuters, office workers, and others. Many of these firms are quite small, and it doesnâ€™t cost much to help save them. This is particularly true for minority-owned businesses and companies located in hard-hit urban areas. Without help, many would surely die. Â
Delivery of this finding has to come quick. The SBA and its partner bank lenders were initially overwhelmed by the response to the PPP initiative.
The SBA smartly enlisted the help of FinTechs, such as Biz2Credit, to be SBA lenders for the PPP initiative. This trend should continue. The FinTechs should also be approved to help facilitate SBA 7(a) lending in the coming year.
Banks, too, are learning that they need to digitize to streamline the lending process. They can make decisions faster and more effectively by partnering with FinTech firms.
The economic stimulus package already has improved the morale of small business owners. Many have been waiting for months to get help and are extremely desperate right now, especially as the COVID numbers go up.
With the vaccine now being distributed, hope grows for small business owners and the country overall. The Biden administration will make expanding access to capital a priority. As the health situation improves, so will the financial situation of small firms, which create the lionâ€™s share of private sector jobs in the economy. The renewal of the PPP program will help greatly.