Here’s what this PPP cycle means for small businesses
As the CEO of a Draper-based company, Greater Salt Lake has a big part of my heart. Over half of our employees are based in Utah, and it’s hard to see local businesses suffering like they have over the past 10 months. Social distancing measures are in place, the steady influx of winter tourists has slowed, trade shows have been canceled and now many restaurants and shops in the community are struggling. For small business owners who still struggle to stay open, however, there is a new ray of hope: With the signing of the new stimulus bill, new loans through the Paycheck Protection Program (PPP) are now on the way. available.
My company, Nav, helps small business owners access finance of all types, including P3 loans. We are not a lender. Rather, we connect business owners with the best lender for their needs to save time and streamline the process. Over the past year, we’ve been able to help over 6,000 companies get financing through P3 in particular, but we’ve also seen the program fail for far too many. In large part, I attribute the failures of PPP to the complexity of the processes. Requests for forgiveness alone can take up to 15 hours to be completed by owners of small and medium-sized enterprises (SMEs), according to a September Government Accountability Office study. And in December, a survey conducted by Nav of small businesses found that the application documents were one of “most frustratingParts of the PPP, and the number one most frustrating aspect for companies with less than 20 employees.
Net-net, the first round of PPP was unnecessarily complicated and required time and resources that many small business owners simply do not have to waste. The fact that it did not serve SMEs adequately is unacceptable. Not only are these the businesses hardest hit by COVID-19, but almost all businesses in the United States fall into the SME category, accounting for almost half of all businesses in our country. economic activity. The good news is that the second round brings some subtle changes that should benefit small businesses.
What is different this tour
With the first wave of P3s, many small business owners thought they could walk into their local bank and get out with a loan, but instead faced red tape and closed doors. This cycle, more banks and non-bank lenders are being put in place to help small businesses, and overall the process should be more streamlined. In some cases, you can now upload a photo of your tax return or payroll forms, for example, and the information will automatically be added to your app. This did not exist when PPP debuted last spring.
There are also more eligible non-salary expenses. This means that business owners can use money more flexibly. To get full rebate, borrowers still need to spend 60% or more of the loan on qualifying salary expenses, but the rest can be spent on a longer list of non-salary costs like personal protective equipment. Many small businesses have had to invest in plastic masks, gloves and shields, and now loan proceeds spent on these items will be forfeited.
In general, forgiveness with this PPP cycle is more flexible. More of the loan will be easier to cancel, and the part of the loan that is not will be very inexpensive. The forgiveness process has also been simplified, depending on the size of the business. For loans under $ 150,000, the SBA requires only a one-page form. For context, the average loan amount in the first round was $ 101,000, and 68% of the loans were less than $ 50,000, so that will cover most small businesses.
PPP still falls short
All of these changes are important, but there is still room to improve PPP for SMEs. Think about how easy it is to receive a stimulus check. It’s essentially automatic, based on your personal tax information. It should also be this simple for small businesses, but instead, paperwork and cumbersome application has become a common obstacle for businesses to get the capital they need to survive.
For example, while business owners who have already received PPP loans may qualify for a second loan in this cycle, to qualify they must show a 25% reduction in their income in a quarter in 2020 compared to the same quarter in 2019. Given that we are less than two weeks away in 2021, many business owners may have to scramble to catch up on accounting before the program ends on March 31. 2021, and at a time that already tends to be busy.
Another fundamental flaw in the bill stems from its definition of a small business: less than 300 employees for second-time PPP borrowers and less than 500 for first-time borrowers. Meanwhile, the overwhelming majority (98 percent) of US businesses employ less than 100 people. Of course, there are businesses with more than 100 people who also need help, but a narrower definition would help ensure that the most vulnerable and small businesses are not crowded out by larger companies looking for help. larger loans.
That said, any amount of capital is a welcome relief for many small businesses right now. As of this writing, it has only been a few days since the SBA portal officially opened for Wave 2, but we are already seeing a massive volume of applications.
Despite some shortcomings, if you are a local business owner and are eligible to apply for the PPP or the new EIDL Grants, you must apply. Quickly determine what amount you qualify for with The Nav PPP calculator. Then get your books in order, file your claim, put capital into your bank account, and make a plan to weather the storm. Normal is on the horizon, and when it is safe, I can’t wait to return to Utah and visit beloved restaurants, ski the powder, and hang out with coworkers. It’s been too long.