Small business requests for money from the federal government’s Covid-19 relief initiative are well below the breakneck pace of last year, prompting changes in the final month of the program to reach the hardest-hit businesses .

Small Business Administration Wednesday issued new guidance on changes the paycheque protection program. He overhauled the formula for calculating loans to sole proprietorships and certain other businesses, making the program more attractive to smaller businesses.

Justin Burgess of Deco-Dence Gallery & Studio, an art deco furniture dealer and custom furniture maker in Dallas, initially decided not to apply for a second PPP loan this year after receiving $ 3,000 in 2020.

Justin Burgess is working on a project at the Deco-Dence Gallery & Studio in Dallas.

“It was just a paltry sum,” said Mr Burgess, whose sales fell about 50% during the pandemic. “It was a lot of work for very little return.” The new approach should “make it much more advantageous,” said Burgess, who is now considering applying for a second loan.

SBA data as of February 28 shows the agency approved 2.2 million PPP loans totaling about $ 156 billion, just over half of the funds available, in the last cycle. After closing last August, the PPP reopened in January with funding of $ 284 billion providing forgivable loans to first and second time borrowers. The deadline for submitting applications is March 31.

The program will likely end with money on the table, said Tony Wilkinson, chief executive of the National Association of Government Guaranteed Lenders, a trade group. Mr Wilkinson expects the fixtures to total around $ 220 billion at best, based on the program’s current rules.

The Biden administration announced several adjustments last week PPP to help the initiative reach more companies, especially those with few or no employees. The rules released on Wednesday change the way sole proprietors, independent contractors and freelancers can calculate how much funding they should receive, giving them the flexibility to focus on gross income rather than bottom line.

“We think this is going to be very meaningful as there are a lot of applicants who are self-employed who have qualified for very little or nothing at all,” said Matt Raker, executive director of Mountain BizWorks, a development finance institution. community in Asheville, North Carolina, that works primarily with rural and low-income businesses.

The showroom of Deco-Dence Gallery & Studio, a company that could benefit from the PPP changes.

Mr Raker said some applicants without employees could see their potential loan amount double. As of the end of February, Mountain BizWorks had processed nearly 200 PPP loans totaling $ 5.4 million during this year’s cycle, and had an additional $ 7.6 million in loans pending processing.

Borrowers who have already had their P3 loans approved cannot increase their funding amounts using the new formula, the SBA said. First-time PPP borrowers who use gross income in excess of $ 150,000 to calculate their loan amounts may be subject to review by the agency.

The SBA released the information just weeks before the program closed, creating a lack of time for borrowers to take advantage of the policy change.

Mr Wilkinson, of the lenders’ group, said he expects the volume of applications to drop by mid-March as he has heard from some lenders who plan to stop accepting loans. requests well before March 31st. These lenders will do this to make sure they have enough time. to process requests from borrowers whose approvals have been delayed due to measures put in place by the SBA to reduce fraud in the program, according to Wilkinson.

Underground Fitness, a gym in Asheville, posted a loss on its financial statements before the pandemic as it amortized the costs of building its facility. Co-owner Mary Sczudlo is hoping the four-year-old company qualifies under the new rules, but is still analyzing the recently released details. “I don’t know if this will help or not,” she said.

Scott Fann, vice chairman of Wood & Huston Bank in Marshall, Missouri, said the government should extend the program deadline in light of the changes announced. He compiled a list of plumbers, hairdressers and other independent clients who would have received little or no PPP funding before, but could benefit from the new approach.

SBA data at the end of February shows that about 25% of the program dollars in the last cycle were approved for borrowers in low and moderate income areas. Overall, applicants with less than 10 employees had been approved for $ 45.2 billion in loans, nearly 30% of the dollar volume approved so far.

Reaching out to smaller borrowers more may require changes beyond adjusting the PPP lending formula.

Some solo entrepreneurs in minority communities “don’t know how to navigate the waters of these loans,” said Robben Washington, counsel to the board of directors of the 52nd Street Vendors Association in West Philadelphia. “They don’t trust people who call randomly and try to help them.”

The Enterprise Center, a Philadelphia-based nonprofit, said the number of PPP requests it received rose to more than 650 this year, from 164 in 2020, after it began providing homeowners from local businesses online application procedures instead of just going through as well as program information. “It has helped tremendously,” said Della Clark, president of The Enterprise Center.

At Bangor Savings Bank, commercial director Jim Donnelly said demand has cooled this year in part because of new eligibility rules to direct aid to the hardest hit borrowers. Under these rules, borrowers who want a second loan must demonstrate a 25% drop in gross receipts during a quarter in 2020 compared to the same period in 2019. Congress added the requirement in response to criticism that aid was given to businesses that did not need it. help last year.

The WSJ is traveling to Yuma, Arizona, where small business owners say further congressional stimulus might be too little or too late. Photo: Adam Younker for The Wall Street Journal

The Maine-based bank has made about 2,200 PPP loans worth $ 170 million through mid-February. It processed nearly 5,000 PPP loans totaling $ 421 million in 2020.

“The volume is more targeted to companies that are really affected by the changing economy and are really looking for a way to survive to get to the other side,” Donnelly said.

of Congress decision to limit loans for the second time to a maximum of $ 2 million, slow remittances on larger PPP loans and public outcry over the past year by larger borrowers have also contributed to a drop in the volume of larger loans, lenders said.

Initial loans are capped at $ 10 million, but only 206 loans over $ 2 million, or 0.6% of total program dollars, have been made in this PPP round. At the end of the program last August, about 20% of approved funding had been spent on loans over $ 2 million.

Some small businesses said they no longer needed the help. A $ 318,000 PPP loan last year allowed Alchemy Worx, a New York-based digital marketing firm, to reverse the 25% pay cuts and rehire three employees it had laid off.

“I could probably get the money in the second round,” said Alchemy general manager Allan Levy, “but I don’t think that morally would be the right thing to do.”

Write to Amara Omeokwe at [email protected] and Ruth Simon at [email protected]

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