PPP Already Ran Out of Money Once, So Experts Say to Think Smart, Fast This Time

As companies struggle with the economic impacts of the coronavirus, one question stands out the most: With an additional $310 billion infusion into the Paycheck Protection Program for small businesses, will that be enough to help?

As expected, the U.S. Small Business Administration announced it resumed accepting PPP loan applications at 10:30 a.m. on Monday from approved lenders on behalf of any eligible borrower. While there are no predictions as to when this round of funding will run out, some worry it may happen quickly like the first round.

On April 16, 14 days after the launch of the $349 billion Paycheck Protection Program, the U.S. Small Business Administration announced that the program had run out of money. Only 5.7% of small businesses across the U.S. got approved for funding, according to Business.org, which studied the PPP program. Business.org estimates this second round of funding will reach around 15% of businesses.

In Michigan, only 5% of the state’s small businesses were able to receive PPP funding from the initial round for a total of 43,438 loans funded across Michigan, Business.org reported.

The PPP loans are meant to help small business owners pay for expenses like payroll, rent, and utilities. These loans are an effort to help small businesses pay their essential expenses in order to maintain staff and to be ready to open their doors once they are able to.

“As far as we know, there isn’t a rhyme or reason as to why some states fared better than others for PPP funding. The sooner an applicant was able to apply for this loan, the better their chance was to gain funding,” said Madison Haggin, Communication Specialist for Business.org.

“Since only 5.7% of our nation’s small businesses were helped with the initial sum, we need this second round of funding to be helpful for small business owners, but it won’t help all small business owners,” Haggin said.

Although the PPP process is fraught with uncertainty, some organizations have guarded confidence for this second round of PPP loans.

“We’re encouraged (by a second round of funding) but a lot more needs to be done,” said Charles Owens, National Federation of Independent Business state director in Michigan. “A lot of these businesses have no choice” but to apply again and hope for the best.”

The Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) are the two primary loan programs available to negatively impacted small business owners in need of financial assistance.

All in all, Owens said the NFIB and business owners anecdotally are “cautiously optimistic” that businesses that desperately need this loan program will get some relief.

In a NFIB Research Center survey released last week, it found about 20% of submitted applications have been fully processed with funds deposited in the borrower’s account, but 80% of respondents said they are still waiting, and many do not know where they are in the application process.

The survey also found most small business owners believe it will take beyond 2020 to recover from the economic impact of COVID-19, with only one-third of small business owners believing their community will get back to a normal level of economic activity by the end of the year. A quarter of owners believe it will not be until 2022 or later before the economy returns to normal.

“Another big issue is getting the labor force re-engaged,” Owens said. “We were already having labor shortages before (COVID-19).”

Lessons learned
Andrea Mosher, Senior Vice President of Lending at Lake Trust Credit Union, said there are lessons to be learned from that first round of funding, and that small business owners should approach the next round with some best practices.

Lake Trust Credit Union serves nearly 200,000 members in Michigan and has branches in more than 20 communities across the state, including Detroit and Lansing, and worked directly with small business owners to process PPP loans over the past several weeks.

First, Mosher said companies should work with a trusted advisor if you can – CPA, attorney or business consultant. The most successful applications Lake Trust has received are from small business owners who worked with an advisor to complete them.

Next, Mosher recommends businesses complete the entire application thoroughly. That may sound simple, but every box that is unchecked or incomplete slows down the application and puts small business owners at risk of missing out on dollars from this program. Small business owners are tempted to think “I’ll submit it with the information I have and go from there” but that delays the process in reality, Mosher said.

Finally, Mosher said business owners should try to refer to the U.S. Treasury website – it’s the best source of information out there. It is the “go to” source Lake Trust is relying on for the most recent guidance and information, Mosher said.

Results vary
On Monday, Michigan’s Gov. Gretchen Whitmer along with the Small Business Association of Michigan (SBAM) and Michigan Association of Certified Public Accountants (MICPA) encouraged Michigan businesses to apply for PPP loans as “much-needed financial support” to “help them get through this tough time,” Lt. Governor Garlin Gilchrist II said in a statement.

Businesses that have a pending application are encouraged to verify their application status with their lender. Businesses that have not yet applied are encouraged to do so quickly.

More than 43,000 businesses in Michigan impacted by the COVID-19 outbreak received more than $10 billion in forgivable loans during the first round of PPP funding.

“We encourage any small business looking for assistance through the PPP to act now,” Bob Doyle, MICPA President & CEO, said in that same statement. “There may not be additional PPP funding authorized by Congress in the future.”

Additionally, Mark Burton, CEO of the Michigan Economic Development Corporation, called the PPP funds “paramount to economic recovery efforts in the state.”