It’s been more than two months since federal government aid programs to help businesses struggling during the COVID-19 pandemic started appearing with massive funding.
Since then, billions of dollars in aid has been dispersed to companies from programs by agencies such as the U.S. Small Business Administration’s Paycheck Protection Program (PPP).
But funding still remains. And, as might be expected from a new kind of massive aid program that was conceived, built and implemented in a matter of weeks, rules are continuing to evolve even as the money is being dispersed.
Here’s a look at a few key updates:
PPP goes longer
While it held out the promise of a loan that could cover payroll and eventually be forgiven, the federal government’s Paycheck Protection Program has been anything but relaxing for business owners. In April, as the program began, business owners rushed to understand the rules and get applications as close to the front of the line as possible, then some nervous weeks of waiting as they sought to figure out whether their applications were approved. And for many minority- and women-owned businesses, the program remained inaccessible.
Nevertheless, “relaxing” was the word applied in many headlines when it came to some new rules that arrived on June 5. After the rush on the front end to get everything in and get the money out, a law dubbed the PPP Flexibility Act is now extending the time in which the funds can be used and reduced the amount of funding that needs to be spent on payroll, among other provisions. The SBA’s rules were released on Friday and updated this week.
The changes were supported by U.S. Sen. Ben Cardin (D-Maryland), who is the ranking member of the Senate’s committee on small business and entrepreneurship.
“This chamber acted in a responsible way and legislation that Senator Rubio and I, and others, along with House colleagues, had recommended to our colleagues, that would give small businesses that have existing PPP loans the discretion to use those funds over a 24-week period, rather than an eight-week period, recognizing that many of these businesses cannot get up to full payroll during this eight-week period,” Cardin said from the Senate floor on June 4. “We also gave greater flexibility on the allocation of the funds.”
That change to extend the period in which the funds can be used was the main provision of the new law, said Jennifer Berman, CEO of MZQ Consulting LLC and Senior Vice President of Compliance for Kelly Benefit Strategies. The loans still essentially cover eight weeks of expenses, as the funding remains 2.5 times of a month’s operating costs.
PPP's initial $349 billion was used quickly, and Congress re-upped with another $310 billion in late April. But as of last week, more than $130 billion remained in the program.
“That equation has not changed,” Berman said. “What’s changed is how much time you have to spend it.”
Now businesses essentially have six months to spend that money, meaning those who receive funding this month could have until the end of the year.
This adjustment “fundamentally changes what this program is,” Berman said, shifting it well beyond the original two months. Despite the initial infusion of money from the PPP, many businesses realized they wouldn’t be able to spend it in time.
“The problem is, by the time the money got there, most employees were gone already,” she said. Small business owners “didn’t want this money as loans, they wanted grant money, and they couldn’t qualify because they weren’t spending eight weeks of money in eight weeks anymore.”
As this realization set in, lending slowed down. The initial $349 billion was used quickly, and Congress re-upped with another $310 billion in late April. But as of last week, more than $130 billion remained in the program, The New York Times reported.
That means money is still available for business owners through the end of this month, when the program’s applications end. And now it can be used for the rest of the year.
As SBA brought a new program to life quickly that’s much bigger than anything it’s ever administered before and required banks getting up to speed quickly, it may still be leaving business owners uncertain.
“I’ve definitely talked to scores of them on this topic and there’s a lot of frustration and confusion. All of that being said, it’s also a lot of free money,” Berman said. No matter the size of the loan, she said, “it’s better than missing out on a way to continue to compensate your workforce.” And if navigating the challenges means talking to an accounting firm, lawyer of consulting firm, Berman advises: “Just do it, because the dollars to have somebody help you through it are so much less than you would spend otherwise.”
Another change is that 60% of funds must now be dedicated to payroll, as opposed to the initial 75%.
One tip for companies that work with freelancers using 1099 forms: While the PPP doesn’t cover payroll for 1099s, the freelancers who are 1099 can apply on their own.
Main Street Lending Program launches
The Federal Reserve is also launching a loan program, called the Main Street Lending Program, and opened registration for lenders on Monday. It is making $600 billion in loans available, and recently revised down the loan amount to $250,000 to allow more small or midsize businesses to access the program.
With the Main Street Lending program, Berman said it makes available money to borrow to help keep the economy running, but these are still loans. For business owners, whether it’s right for them returns to a classic question facing business owners: whether a loan is the right way of securing capital, and whether the debt that comes with it is worth assuming.
As Berman called it, “that normal, regular old ‘to borrow or not to borrow’ question.”
Economic Injury Disaster Loan reopens
Another bit of news to pass along this week: The SBA is reopening a separate area of funding, called the Economic Injury Disaster Loan program, to all businesses. This comes after the program’s application was only open to agriculture businesses for the last month, CNBC reported.
In his remarks, Cardin said that the EIDL and PPP were intended to work together when Congress provided funding for the EIDL in the CARES Act, but initial numbers were “extremely disappointing.”
The EIDL offers loans to cover business expenses for businesses and nonprofits with fewer than 500 employees. These loans are distinct from the PPP’s lending, as they cannot be forgiven. The program also allows business owners to apply for advance payments of to $1,000 per employee, up to $10,000, which does not have to be paid back. Apply here.
The SBA is also opening up two additional small business centers specifically designed to help women and minority business owners. One will be at Morgan State University in Baltimore, and another will be in Salisbury on the Eastern Shore.
When it comes to expanding access to PPP, additional programs have been setup through a partnership between Diddy, JPMorgan Chase and Harbor Bank of Maryland, as well as the City of Baltimore, Goldman Sachs and Lendistry.-30-