The Paycheck Protection Program is meant to offer economic relief to small businesses in need of funding to cover wages and salaries, but is it enough? Is more funding on the way?
The U.S. Small Business Administration (SBA) has announced that there is no available funding left to support the Paycheck Protection Program, just 13 days after the application period for the COVID-19 loan program opened.
The SBA posted on its website that it is "unable to accept new applications at this time for the Paycheck Protection Program or the Economic Injury Disaster Loan (EIDL) COVID-19 related assistance program (including EIDL Advances) based on available appropriations funding." The notice also said EIDL applicants who have already submitted an application will be processed on a first-come, first-serve basis.
The move makes clear what had been a growing suspicion that businesses were going to encounter long waits on receiving loan money. Will there be more funding on the way? Small businesses are hopeful, but uncertain.
Funding exhausted for the Paycheck Protection Program
Demand for funding through the Paycheck Protection Program has been immense. Less than two weeks since the program opened for applications, the $349 billion earmarked for the loans was already exhausted.
"I've never seen such demand in a compressed timeframe," said Chris Hurn, founder and CEO of SBA lender Fountainhead. "The lending community is overwhelmed right now."
Michael Weiner, attorney and partner at Slate Law Group, who has consulted with clients and banks on the Paycheck Protection Program, echoed concerns regarding the overwhelming volume of applications.
"The banks are inundated with applications," Weiner said. "It seems like everybody who potentially has payroll … is looking to use this opportunity to get funding."
For independent contractors and self-employed individuals, the situation could be even more challenging. Independent contractors were not eligible to apply for a Paycheck Protection Program loan until April 10, a full week after the application process opened for businesses. That, coupled with the exhaustion of initial funding through the program, could see independent contractors left out in the cold, said Bass Bauman, director of finance at Joust.
"SBA guidance said businesses could not use PPP loans for contractors because they [contractors] are eligible [to apply for PPP loans directly]," Bauman said. "But contractors couldn't apply until April 10, and the banks are overloaded. Contractors are pretty much in the back of the line. The concern we have is that the self-employed segment will in large part be outside of the aid provided by the PPP."
Gerri Detweiler, education director at Nav, said businesses that have outstanding applications in the pipeline but aren't sure if they will be approved and funded should continue preparing as if more funding will be delivered.
"Make sure your bookkeeping is up to date," Detweiler said. "Work with your accountant or bookkeeper to get your taxes up to date.
"The second thing is to talk to your elected officials in Washington and let them know why you need this funding," she added. "They're the ones who will ultimately decide if there is more funding."
Editor's note: Looking for a small business loan? Fill out the questionnaire below to have our vendor partners contact you about your needs.
When can approved borrowers expect funding?
Although funding for the program has been exhausted, many borrowers have yet to receive a dime. The guidance released by the SBA means lenders have to fund an approved loan within the first 10 days, but with so many applications in the pipeline, it could take a while to process them all.
According to COVID Loan Tracker, a website that crowdsources data from businesses that have applied for a Paycheck Protection Program loan, as of April 16, only 5% of the more than 11,300 applicants reporting to the platform had received funding. The average payment speed from approval is 8.2 days for applicants reporting to COVID Loan Tracker. The median company size of loan applicants was 12 employees, and the median loan size requested by reporting businesses was $98,5000.
"To temper expectations, lenders should say they will process applications as fast as they can, but give them days or maybe a week," Hurn said. "Then, the next bottleneck will actually be funding these loans."
The slow delivery of funding through the Paycheck Protection Program is a potentially existential issue for many small businesses. In an opt-in business.com survey of 350 entrepreneurs conducted between March 19 and March 30, more than 37% of respondents said they would not survive one month without additional funding due to the current economic disruption. An additional 24% said they would not survive two months.
Will there be additional funding allocated for the Paycheck Protection Program?
It is unclear if Congress will make additional funding available to the Paycheck Protection Program. Last week, Senate Democrats reportedly blocked a proposal for an additional $250 billion for the program because it didn't include additional funding for hospitals and state governments.
The proposal for additional funds was put forward by Senate Majority Leader Mitch McConnell (R-KY) at the behest of U.S. Treasury Secretary Steve Mnuchin. It would have brought the total funding for the Paycheck Protection Program to date to $599 billion.
The Senate is now officially scheduled to reconvene on April 20 but could hold a special session before then to approve additional funding for the program.
"[The Paycheck Protection Program] can be a hugely helpful program … and I would encourage businesses to look at this and do so quickly," Bauman said. "Time is not in their favor. Now is the time for them to take action."
Bauman added that a good place to start is with a bank you already have a business relationship with. Otherwise, he said, start calling local banks today to ask if they offer loans through the Paycheck Protection Program.
"The consensus seems to be that banks are speculating additional funding will happen," Bauman added.
"If you're already in line, don't assume the worst," Detweiler said. "Hopefully, Congress is going to act quickly and deliver more funding. Don't give up, but at the same time, speak up for your needs."
What is the Paycheck Protection Program?
The Paycheck Protection Program was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $2.2 trillion stimulus package allocated $349 billion for low-interest loans that could be forgiven in full if used for qualified expenses, such as wages and salaries.
These are some distinct advantages of a Paycheck Protection Program loan as opposed to a typical loan:
- No application fees
- No personal guarantees or collateral requirements
- Fixed 1% annual percentage rate
- Deferment on the first six months of loan payments
- Partial or full loan forgiveness opportunities
Those attractive terms and the widespread economic need prompted by the coronavirus pandemic have caused a rush for funding through the program by small business owners across the country. [Here's how to apply for funding through the Paycheck Protection Program.]
For more information on the coronavirus pandemic and resources to help your business navigate these difficult times, visit business.com's COVID-19 small business resource page.