The COVID-19 pandemic has been particularly tough for small business owners, and more of the same is expected in 2021 as the coronavirus continues to surge. When the pandemic hit, small business owners were forced to close operations or spend extra cash on social distancing measures. Many businesses didn't survive. The ones that did needed government aid and loans.
The government responded with the CARES Act, providing business owners with forgivable loans through the PPP. That has since expired, but more help from the federal government may come in 2021.
In lieu of more forgivable loans, in late October, the Federal Reserve Board reduced the minimum loan size for loans available through its Main Street Lending Program from $250,000 to $100,000. The Fed also clarified that PPP loans up to $2 million can be excluded from determining how much a business can borrow under the Main Street Lending Program.
These moves are designed to spark interest with business owners who favored PPP loans over the Fed's lending program. In 2021, small business owners who took advantage of PPP will need guidance on how to receive forgiveness on their loans and whether they will face a tax hit as a result.
Without a clear idea whether additional stimulus is coming, small business owners will continue to turn to online and alternative lenders for cash in 2021. Banks and credit card issuers have been less willing to lend to small businesses during the pandemic. Online and alternative lenders have stepped in to fill that void. In 2020, the Federal Reserve slashed interest rates, nearly to zero, and they aren't expected to rise dramatically in 2021.
Business owners who tap online and alternative lenders in 2021 will not only receive low interest rates, but advances in technology may improve the process. Artificial intelligence and machine learning are reducing loan approval wait times. Credit scores still matter, but lenders are increasingly scrutinizing other aspects of a business owner's finances to ascertain their creditworthiness. Altogether, these changes are designed to make it easier and quicker to get a small business loan in 2021.
As in 2020, the number of companies that offer online and mobile lending is expected to grow. Since digital options provide extensive financing opportunities and faster approval, they are expected to be increasingly popular choices compared to traditional banks and credit unions.
In recent years, large companies like PayPal and Amazon have made a big impact on the small business lending market. By 2019, PayPal had provided $10 billion and Amazon over $1 billion in loans to American small business owners. Along with Square, they have become top loan options for small businesses.
Digital lenders' use of personalized offers makes them more attractive to small business owners. Brands have learned to target consumers based on their specific interests, and we expect more lenders to follow suit. To provide entrepreneurs with the specialized funding they need at the right time, we predict digital lenders like PayPal and Amazon will increase their personalized offers to small businesses.
Peer-to-peer lending is also projected to increase among small businesses. With peer-to-peer lending, interest rates and loan offers are based on a business's earning potential rather than its credit score. As peer-to-peer loans become more common, the camaraderie within small business groups is likely to strengthen and grow. Transparency Market Research predicts the global peer-to-peer lending market will reach $897.85 billion by 2024.
March 2021: The Paycheck Protection Program has proven to be a lifeline for small business owners, but many have been shut out of the process. To ensure more small business owners get access to forgivable loans, the Biden administration made changes to the PPP. Those revisions include a 14-day designated period from February 24 to March 10, 2021, during which time only small businesses with fewer than 20 employees can apply for a PPP loan.
In addition, sole proprietors, independent contractors, those who are self-employed, individuals with nonfraud felony convictions or student loan delinquency are now eligible to apply for a PPP loan. Noncitizen business owners who are lawful U.S. residents can also now apply for a PPP loan using their individual taxpayer identification numbers.
April 2021: The deadline to apply for the Paycheck Protection Program, a popular government pandemic relief loan program, has been extended to May 31, 2021, three months later than the previous March 31, 2021 deadline. The Small Business Administration can approve PPP loans until June 30, 2021, under the extension.