One of the best government deals ever has just gotten a little softer, and over $ 100 billion is still available for all the companies that were left behind.
The Paycheque Protection Program, which launched in April as part of a massive coronavirus relief program, allows small businesses to borrow up to 2.5 times their monthly payroll. Federal loans carry an interest rate of 1% and will be forfeited if a business maintains its workforce.
In essence, loans can turn into grants, and the deals were so popular that the first $ 349 billion didn’t last two weeks. Congress quickly added $ 320 billion, and a lot of money is still available – but only until June 30, the last day to get a loan approved.
Until Saturday, over 4.5 million loans had been approved nationwide, including nearly 362,000 in Texas, according to the US Small Business Administration. The average loan size was around $ 113,000, indicating that much of the aid was reaching its target audience.
Friday, the rules on PPP loans have been relaxed significantly, which will help companies struggling to reopen their activities. Borrowers have more time – 24 weeks instead of eight weeks – to spend the P3 loan and receive a discount. They can get exceptions to the manpower requirement if employees refuse to return or if business is restricted. And if they have to repay the loan, they can extend the terms to five years, instead of two.
The additional flexibility was approved overwhelmingly by Congress.
“Finally, they heard us,” said Tom kenney, a Texas restaurant owner who lobbied for the changes and appreciated the bipartisan response. “The clock was ticking and it was almost midnight. “
Kenney owns Napa Flats wood-fired cooking, which has branches in Austin, College Station and Tulsa. Sales are down as much as 60%, according to the restaurant, and it’s borrowed just over $ 225,000 for each location.
Its initial eight-week period for using the loans reportedly expired in mid-June, and only about a quarter of its 160 employees have returned to work. He wouldn’t have had a lot of loan cancellations under the old rules. Now he has the option to rehire people later and get the benefit.
“I don’t need people anymore; I need it when business starts to pick up, ”he said.
Even though his loans are not fully canceled, he is not complaining. “If I hadn’t had this money, I wouldn’t have done it,” Kenney said.
Texas executives use P3 funds for a variety of purposes. Almost 8 in 10 said they had prevented layoffs and time off, and a majority said the money helped pay rent and other bills, according to an investigation by the Federal Reserve Bank of Dallas.
When the loan program was launched, it was advertised on a first come, first serve basis. It led to a race for loans, as one local banker put it, and many small businesses were put on lockdown.
The Associated Press reported that at least 94 listed companies and branches had used the program, and nine had borrowed the maximum amount, $ 10 million. Government said publicly traded companies were unlikely to qualify for taxpayer-guaranteed loans and said it would conduct an audit loans over $ 2 million.
Several companies repaid the money, including Shake Shack, Potbelly and Ashford Inc., which owns more than 100 hotels and has received nearly $ 60 million in PPP loans.
Between the extra oversight and the extra second round financing, it looks like most of the potential borrowers have made it through. In a recent NFIB survey, a leading advocate for small businesses, over three-quarters of members said they applied for a P3 loan and 93% got one.
In early April, loans were approved at a rate of about $ 24 billion per daysaid Robert Klingler, attorney at Bryan Cave law firm. At the start of the second round, about $ 35 billion was approved daily. In the week that ended on Saturday, net new PPP loans stood at around $ 1 billion per day.
“The only request we receive is from borrowers outside the region,” said Cynthia blankenship, company president of West Bank, which has nine sites, including its head office in Grapevine. “There is an underserved and forgotten area that would benefit greatly. But the challenge there is financial literacy.
Bank of the West processed nearly 1,000 PPP loans, worth around $ 87 million, she said. A surprising trend is that many borrowers have been slow to use the money, leaving it in their bank accounts instead.
“I thought it was going to come out, but it’s just leaking,” Blankenship said.
She thinks many businesses were afraid of qualifying for a loan forgiveness and didn’t want to increase their long-term debt. At the same time, the extra money is really valuable now, even for businesses surviving the pandemic.
“We’re fine on June 8, but where will we be on September 8?” ” noted Allan Peiser, managing partner at Goldin Peiser & Peiser, an accounting and consulting firm in Dallas. “It is the uncertainty that is so baffling.”
His company, which has around 75 employees, borrowed just over $ 1 million in the form of a P3 loan. He said the company did not fire or leave workers and cut wages.
“There is no doubt that having excess cash has given us more confidence to keep the workforce,” said Peiser.
His advice to clients is to ask for money, especially with the many additional ways to qualify for a loan forgiveness. Saturday, over $ 130 billion was still available in the federal program.
“If that gives you a lifeline and gets you through that, that’s a good thing,” Peiser said. “Even if you forget about forgiveness, 1% interest is a very good deal – especially if it keeps you viable.”
Many companies and bankers are pushing for another improvement. To get loan forgiveness, a borrower must complete an 11-page application and submit many pages of documentation.
There are proposals to forgo the paperwork for small loans – less than $ 250,000 or $ 350,000. This would exclude about 90% of borrowers, depending on where the line is drawn, and ease the regulatory burden on businesses and lenders.
Andy Ellard, co-owner and general manager of Manda Machine Co. in Dallas, borrowed $ 204,000 under a PPP loan. Her company added a worker in the past eight weeks, so she is certain she qualifies for a loan forgiveness. Still, he is reluctant to start the long application.
“It’s very confusing, and I’m not sure if I should bother filling it out,” Ellard said. “I don’t want to spend hours filling out paperwork and generating all the payroll data if it’s not needed. “
If this change happened, companies would have one more reason to exploit the federal premium.