This article was originally published on the SCORE blog, find the original article here.
By Andi Gray and Dalia Jennings, Strategy Leaders
For businesses struggling amidst the COVID-19 pandemic – help is on the way, in the form of small business loans. But just how much help is it really?
The Paycheck Protection Program (PPP) has been updated. Congress approved an additional $284.5B for the program, which will give small business loans/potential grants to eligible new borrowers as well as qualified second round borrowers who have already received and used a loan under the first round.
The new PPP2 ensures that small businesses receive the majority of funds directed towards them.
“Small and minority-owned businesses often don’t have enough money to win the first bidding process. This is because they don’t have the resources to do marketing campaigns like the bigger, publicly held companies. The government wants to make sure that all businesses are on a level playing field, so it regulates some industries more heavily than others. This bill targets those firms, and specifically blocks big companies from participating,” Andi Gray, president of business consulting firm Strategy Leaders explained.
While the Small Business Administration (SBA) has not issued final rules about how the new law will be implemented, here is what we know so far.
The new loan is expected to hit sometime in January. Community Banks will start taking applications this week, and other banks will start soon after that. Businesses that meet the criteria of 300 or fewer employees and have experienced a 25% revenue reduction in any quarter of 2020 compared to the same quarter of 2019 are eligible for the loan. If they received PPP1, they must certify that they have used the full amount of their first PPP loan. The PPP1 application window will also re-open for companies that did not initially get approved. Just as with PPP1, PPP2 borrowers will be able to choose their own repayment terms.
PPP2 will offer simplified forgiveness on loans of $150,000 or less. New covered expenses are eligible for forgiveness such as those related to property damage, operations expenses, PPE, and supplier costs. Once PPP funds are issued, banks are predicting they will be able to start processing forgiveness on PPP2 loans in February or March.
Experts are urging small businesses to approach the use of PPP funds with caution. Get help. Get good advice. Make a plan. Use the funds wisely.
Making mistakes can be really costly for small businesses. For every small business that fails, on average 5 employees lose their jobs. Plus, 3-5 other companies can lose work too – which might make them go out of business. This is why it’s important to help small businesses succeed. They are highly resourceful, dedicated, and driven to innovate – which can help our economy speed up!
SBA has two applications on their website that you can use to prepare for applying. However, most banks will require that you use their automated application process, which is similar to the information required by SBA. We recommend going to your local bank for help.
The program is designed to help the unemployment numbers, but it does little else for stability.
“In the long term, we need to figure out how to keep businesses alive and help them grow so they can make money. We need to help small business owners figure out what business they’ll be in in six months to six years from now, and make sure they have the financial resources to rebuild their businesses.”
Gray is a very concerned and vocal member of our community. Gray is keeping an eye on the economy. She says that we have to be careful and that the PPP programs and small business loans will have a negative effect. These programs create debt which future generations will have to pay off with taxes.
The program doesn’t do much to help unemployment numbers, but it does provide some stability.
In 2008, the federal government authorized TARP loans to help big banks, insurance companies, and automakers. Gray contents that “the EIDL program at the beginning of COVID was headed in a positive direction – long-term lending with low interest rates and unfortunately it ended up being gutted for PPP1.”Now that PPP2 is out there, it’s time to use the power of federal lending to get funds to small business owners who need money to stabilize, plan and grow, as long as they are willing to agree to pay it back.”
Small businesses are a serious economic force we cannot afford to lose.
The 2008-2009 economic crisis had a big impact on small businesses. A lot of them closed down, and it took many years to get the economy back on track. This current crisis is even worse, affecting small businesses in almost every sector. It is going to take a lot more than the government’s help programs to recover.
Gray insists that the future of the United States economy depends on small businesses and loans. In 2021 and beyond, we need to make sure that small businesses have enough money to keep going. Unfortunately, in every recession, banks have to stop lending money to small businesses that are having trouble. Only with extra help from the federal government will there be enough money available for millions of small businesses to get through the next few years.