Here’s what this round of PPP means for small businesses
As the CEO of a company based in Draper, greater Salt Lake has a big piece of my heart. Well over half of our employees are Utah-based, and it’s hard to watch local businesses hurting as they have in the last 10 months. Social distancing measures are in place, the regular flood of winter tourists has slowed, trade shows have been cancelled, and now many of the community’s restaurants and shops are in trouble. For small business owners still fighting to stay open, though, there is a fresh glimmer of hope: with the signing of the new stimulus bill, new loans through the Paycheck Protection Program (PPP) are now available.
My company, Nav, helps small business owners secure financing of all types—loans through the PPP included. We are not a lender. Rather, we connect business owners to the best lender for their needs to save time and streamline the process. In the last year, we’ve been able to help more than 6,000 businesses get funding through the PPP specifically, but we’ve also seen the program fall short for far too many. In large part, I attribute the PPP’s failings to process complexities. Forgiveness applications alone can take up to 15 hours for small and midsize (SMB) owners to complete, according to a September Government Accountability Office study. And in December, a survey of small businesses by Nav found application paperwork to be one of the “most frustrating” parts of the PPP, and the number one most frustrating aspect for businesses with less than 20 employees.
Net-net, the first round of PPP was unnecessarily complicated and required time and resources many small business owners simply don’t have to spare. The fact that it didn’t adequately serve SMBs is unacceptable. Not only are these the companies hardest hit by COVID-19, but nearly all businesses in the US fall into the SMB category, accounting for almost half of our country’s economic activity. The good news is that the second round does make some subtle changes that should benefit small businesses.
What’s different this round
With the first wave of PPP, many small business owners thought they could walk into their local bank and walk out with a loan but instead met red tape and closed doors. This round, more banks and non-bank lenders are set up to help small businesses, and across the board the process should be more streamlined. In some instances you can now upload a picture of your tax return or payroll forms, for example, and the information will automatically populate to your application. That didn’t exist when PPP first debuted last spring.
There are also more eligible non-payroll expenses. This means business owners can use the money in more flexible ways. To obtain full forgiveness, borrowers still must spend 60 percent or more of the loan on qualified payroll expenses, but the remainder can go towards a longer list of non-payroll costs like personal protective equipment. A lot of small businesses have had to invest in masks, gloves and plastic shields, and now loan proceeds spent on those items will be forgiven.
In general, forgiveness with this round of PPP is more flexible. More of the loan will be easier to be forgiven, and the portion of the loan that isn’t forgivable will be very low cost. The forgiveness process has been simplified, too, based on the size of the business. For loans under $150,000, the SBA is only requiring a one-page form. For context, the average loan size in round one was $101,000, and 68 percent of loans were for less than $50,000, so this will cover most small businesses.
PPP still falls short
All of these changes are important, but there’s still room to further improve PPP for SMBs. Think about the ease of receiving a stimulus check. It’s essentially automatic, based on your personal tax information. It should be that easy for small businesses, too, but instead, paperwork and a cumbersome application has become a common barrier to businesses getting the capital they need to survive.
For example, while business owners who already received PPP loans can qualify for a second loan in this round, in order to qualify, they must show a 25 percent revenue reduction in any one quarter in 2020 compared to the same quarter in 2019. Given we’re less than two weeks into 2021, many business owners may have to scramble to catch up on bookkeeping before the program ends March 31, 2021, and in a time that already tends to be busy.
Another fundamental flaw about the bill comes with its definition of a small business: under 300 employees for second-time PPP borrowers and under 500 for first-time borrowers. Meanwhile, the overwhelming majority (98 percent) of US businesses employ less than 100 people. Of course, there are companies with more than 100 people that need help also, but a narrower definition would help to ensure that the most vulnerable, smallest businesses aren’t crowded out by bigger companies seeking bigger loans.
All of that said, any amount of capital is welcome relief for many small businesses right now. As I’m writing this, it’s only been a couple of days since the SBA portal officially opened its doors for wave two, but we’re already seeing a massive volume of application submissions.
Despite some shortcomings, if you’re a local business owner and you’re eligible to apply for PPP or the new EIDL grants, you should apply. Quickly figure out how much you qualify for with Nav’s PPP calculator. Then get your bookkeeping in order, get your application in, get capital into your bank account, and map out a plan to weather the storm. Normalcy is on the horizon, and when it’s safe to do so, I look forward to returning to Utah and visiting beloved restaurants, skiing in great powder, and spending time with colleagues. It’s been too long.