One week after President Trump signed a $2.2 trillion bill to provide relief for small businesses amid the economic slowdown that resulted from COVID-19, the the U.S. Small Business Administration (SBA) began processing loans for the Paycheck Protection Program (PPP) on Friday.
But for many Baltimore small businesses, that didn’t necessarily mean the money started flowing right away.
The $349 billion program was a signature piece of the larger CARES Act, designed specifically for businesses of fewer than 500 employees. Aiming to provide funding that will help businesses keep employees onboard and key expenses being paid until things start to reopen, it sets up a system where SBA-approved banks offer loans of up to two and a half times an employer’s payroll cost, up to $10 million.
Among a number of funding options being offered, it stands out. Jim Wilhelm, director of SC&H Group’s tax services team, pointed to the bonafides: It’s fully guaranteed by SBA, so collateral is not required. The rate is 1%, which is very low. And there’s no underwriting involved.
And, importantly, the money may never have to be paid back, provided that business owners stick to the terms.
“If you use the proceeds of the loan to keep payroll exactly the same, then in theory all of that money lent to you by SBA would be forgiven, and would not have to be repaid,” Wilhelm said.
The advantages have been well understood in a short period of time. Everyone Technical.ly talked to on Friday believes it can be an effective program and provide cash that’s needed immediately in an uncertain time when businesses and their clients are staring at an uncertain future of how long the social distancing measures that were quickly introduced to stop the spread of the new coronavirus will last.
The SBA typically does something like $28 billion in small business loans nationally. Now it's handling $349 billion through one program.
And there’s need to get cash out quickly. King points out that, for many businesses that need cash in the door now to survive, every day can make a difference.
“It is a streamlined process and streamlined settlement, so it is geared to move really quickly,” said Rob Kunisch, president of Baltimore-based Howard Bank, which is among the local banks that is a preferred lender with the SBA.
Yet for the SBA, it’s also a brand-new process, and it’s a big scale-up in a short period of time.
As Kunisch points out, the SBA typically does something like $28 billion in small business loans nationally. Now it’s handling $349 billion through one program.
This week, the details were still being worked out as the start time approached, and Kunisch said there was “miscommunication” from the SBA.
“On Wednesday, they were telling people, despite not having an application and despite banks not knowing what rules were, that on Friday people would be approved,” he said.
The administration sent the final application and rules for the program at 11 p.m. Thursday, while SBA had said it would begin applications by midnight Friday.
To get ready, Howard Bank had already started accepting applications. But the final application meant they had to rework what was already filled out. And then, on Friday, they had trouble with uploading applications into the SBA’s web portal. Now, the bank is looking to start getting applications filed by early next week.
Howard Bank was far from alone, as prominent banks like industry leader JPMorgan Chase, Wells Fargo, PNC, Citigroup and Truist all said they needed more time before applications could begin, The Washington Post reported.
And the SBA said loans started to go out, even though banks weren’t coming online.
Latest #PaycheckProtectionProgram numbers: 13,669 loans valued at more than $4,300,000,000. @SBAgov @USTreasury & local lenders are providing forgivable loans up to $10 million dollars to maintain payroll for small businesses. https://t.co/Gjt2iQTr6z
— Jovita Carranza, SBA (@SBAJovita) April 3, 2020
For entrepreneurs, the final guidance wasn’t needed to start preparing, even if the applications won’t get submitted until next week.
Jason King, CEO of Severna Park-based web and mobile design and development agency Accella, has been researching funding options along with his father, who is the agency’s CFO, since the initial social distancing orders started in mid-March.
King watched this week as the guidance was evolving. Wanting to be proactive, he found a list on M&T Bank’s website of documents that he started compiling, so he would be ready. The info recommended included the last 12 months of payroll reports, 2019 quarterly tax reports, 1099s for independent contractors, as well as documentation of health insurance premiums and retirement plan funding. He also filled out a sample application from the SBA website.
“We sent it over to them being proactive and getting them as much info as made sense to support the loan request that was made and we’re waiting to see how they respond,” King said Friday morning.
By early afternoon, he was emailed with an update: The bank said that it received documents, but was unable to submit to SBA on their end.
"I think days matter to a lot of companies, whereas we're looking at how long is it in weeks."
For King, his business will be OK in the short-term. It’s a digital company that remains viable in the current climate, but it does have a subset of clients that are in the events industry, and as the social distancing draws on it will put pressure on the ability to land new business.
As his team plans ahead for a future that remains uncertain, King said that they are cutting back on expenses and exploring pay modifications for the team that would begin April 15. The across-the-board cut will help to avoid layoffs. But timing is important. If he gets funding quickly, he likely won’t have to implement those measures.
King said he thinks of companies that are just learning of this info about the program. At the same time, some businesses are looking at tighter timeline.
“I think days matter to a lot of companies, whereas we’re looking at how long is it in weeks,” he said.
From King’s perspective, there’s a balance.
“It feels like they’re moving incredibly fast for the federal government. If we ended up getting the money over the next week, I’d say, ‘Wow very impressive.’ Even though it’s probably longer than some people can deal with, it’s very fast for them.” he said.
Nic China, CEO of Morrell Park-based event photobooth and software company Pixilated, has been gathering info about funding programs as he can. As the government is building the programs, entrepreneurs are right there looking to learn. The business is designed to elevate in-person events, and with those not taking place it was forced to shut it doors a little over three weeks ago. But with the prospect of the PPP, he’s kept staff employed.
Having already applied for the SBA’s Economic Injury Disaster Loan (EIDL), he attended a webinar hosted by government officials at federal, state and local levels this week, and looked to gather as much info as possible. On Friday, he got the newly released application.
“I spent five hours today making sure all the Ts were crossed and the Is were dotted,” he said.
"We're not dealing with any symptoms quite yet. It's all preventative medicine."
In the afternoon, he was waiting for a response, which could come Friday or early next week. For a program that the government is saying is “first come first served” China was relieved, for the moment, to be in the queue.
“I think for the most part we’re on the early side with this stuff, and we should have some answers,” he said.
One tip, China said, is to keep funds for EIDL and PPP in separate accounts. If his company gets both — which is possible —it’s a way to make sure the funds are only used for payroll, and the other specific things that PPP lays out.
Still, it’s an uncertain time. As China pointed out, it remains unpredictable about how long the social distancing measures are going to last, and how quick we’ll return to going to events.
That’s leading businesses that might not need the funds to stay alive today to seek out PPP, as well.
Yair Flicker, president of Canton-based software development consultancy SmartLogic, said he’s set up a group text with other business leaders and is listening to podcasts with economists.
After deciding to apply for PPP funds, he found the PPP application easy to complete, and the payroll platform Gusto was providing reports. But with new guidance, that meant changes on Friday: “It’s a moving target,” Flicker said.
Now he is looking to apply Monday, when his bank said its webpage will be available. (“A good thorough application filed on Monday or Tuesday is really the new goal, rather than get in by Friday,” said Wilhelm.)
Flicker said the business is in good shape for the immediate term in the second quarter. But given the uncertainty about when the economy will get back up and running and what it will look like in that point, he’s thinking ahead to the third and fourth quarter.
For Dan Schepleng, founder of Canton creative agency Kapowza, it was important to get prepared and get into the queue, even if he ends up not needing the loan. He doesn’t expect to see the effects until social distancing drags on into the summer, and has increased the business’ line of credit as an additional precaution.
“We’re not dealing with any symptoms quite yet,” he said. “It’s all preventative medicine.”