What SMBs Should Know About COVID Loans and PPP
Kayla Matthews

The coronavirus has left many entire industries severely disrupted. Small and medium businesses (SMBs) are often among those struggling the most.

The Paycheck Protection Program (PPP) is a recently unveiled program operated by the Small Business Administration (SBA) with support from the U.S. Department of the Treasury. The idea is that eligible businesses can receive loans that prevent them from needing to lay off employees or allow them to rehire the people already let go. It sounds great, but evidence suggests some problems with the distribution of the loans.

For a start, loans of more than $2 million accounted for about a quarter of all funding given in the first round. That percentage fell in the second round, comprising 16% of the funding pool. Concerned analysts weighed in to suggest that true SMBs are getting left out while large corporations benefitted from the help.

The situation might be moving in the right direction, however. Data from the National Federation on Independent Business (NFIB) found that small businesses had better luck after the first round of funding. A news release from NFIB published on May 5 found that 45% of recipients still waiting for their loans at least got word of approval. Plus, more than half of those that applied received their loans.

Here's an overview of things to know if you want to apply for a PPP loan or other forms of help.

Economic Injury Disaster Loans and Short-Term Programs Other Than PPP

Another type of financial assistance you may have heard about recently is the Economic Injury Disaster Loan (EIDL) advances. The SBA initially made them available to small businesses in need of up to $10,000. Successful applicants did not have to repay the amounts. However, as of April 15, the SBA stopped accepting new applications due to a lack of funding.

They resumed accepting applications after getting more money, but now only agricultural businesses with 500 employees or fewer may apply. However, there are other temporary programs to give SMBs relief.

What to Know Before Applying for a PPP Loan

The first thing to keep in mind about seeking a PPP loan is how vital it is to stay informed about new guidance and take it into account. For example, on April 23, the SBA released new guidance related to applicants proving the necessity of a PPP loan for their situations. Be prepared to go into detail about your current business activity and how receiving the loan is a crucial factor impacting your ability to operate.

It's also smart to go to the SBA's page about PPP loans and check your eligibility, as well as how you must use the loan to stay eligible for forgiveness. For example, in addition to using at least 75% of the forgiven amount for payroll, you must also put the loan towards a relatively small segment of expenses. They include:

  • Rent

  • Utilities

  • Interest on mortgages

The PPP program remains open through June 30, 2020. However, the best advice is to submit your application promptly due to a funding cap.

How to Start Your PPP Application

Beginning a PPP application requires going to a participating lender, such as one associated with the SBA, a local bank or a credit union. All PPP loans have the same terms regardless of which backer you choose. Then, if you're wondering about the maximum funding you may receive, figuring that out requires looking at your records and doing some math. The PPP loan could be up to 2.5 times your average monthly payroll over the past 12 months.

Your lender will be the entity in contact with you regarding the status of your application, including the amount given. If you applied for a PPP loan in one of the earlier funding rounds and are still waiting for a response, there's no need to submit documentation again. Variations in how lenders prioritize applications for PPP loans also impact how long it takes for people to hear back.

Whereas some borrowers reported getting a response in hours, others waited weeks. Applying at a smaller community bank may generate faster results than choosing a larger entity that got flooded with applications from people in situations similar to yours.

Knowledge Offers the Way Forward

The COVID-19 crisis threw everyone into uncertainty, and you may worry about keeping your business afloat. Use the information here to broaden your understanding of the financial assistance for which you may qualify. Doing that makes you aware of all the possibilities. Then, fill out the application accurately and as soon as possible to increase your chances of a positive outcome for you and your enterprise.