The stimulus project that President Donald Trump signed on Sunday includes $ 284 billion in new aid for small businesses, and key stakeholders expect the launch of a “second draw” to be less chaotic than an initial round of lending. under the Payment Check Protection Program (PPP) this spring.
The last time, the PPP was an airplane that was still under construction even after taking off.
Companies started applying for forgivable loans on April 3 – just days after the initial stimulus project was sanctioned – and the launch was difficult to grant more than 5 million loans, totaling more than half a trillion dollars in 2020.
“It was a palliative, but it worked,” said Dun & Bradstreet President Stephen Daffron, whose company analyzed the program’s impact, during a recent interview with Yahoo Finance.
‘Great obstacles in its early days’
The early days of the program were hampered by changes in guidelines and some companies were left out of the first $ 349 billion tranche of loans, which expired in just 13 days, based on paperwork delays and where they made their bank deposits.
Officials expect the next “second draw” of loans to be more relaxed with Washington and credit institutions having a year of practice in granting these types of forgivable loans.
Still, complete guidance continues to be provided by the Small Business Administration, which oversees the program, and there is some concern that similar problems may arise again.
A recent letter from groups ranging from the American Bankers Association to the National Restaurant Association asked Treasury Secretary Steven Mnuchin and SBA administrator Jovita Carranza to ensure that rules and guidelines “are issued and finalized before the program goes into effect. “.
“The original process of accelerated PPP implementation hit major hurdles in its early days, which took weeks to recover. We have a chance now to make sure we get it right and to eliminate uncertainty and confusion, ”says the letter.
In a statement, an SBA spokesman told Yahoo Finance that Management “in consultation with the Treasury Department, is working quickly to identify changes to program rules and processes as set out in the legislative text, and to update accordingly. guidelines and systems for PPP creditors and borrowers ”.
They added that the agency is “committed to ensuring that the next round of PPP is launched as quickly as possible”.
How it’s set up to work
The 5,593-page account includes $ 900 billion of relief, including the $ 284 billion for the PPP to be combined with about $ 140 billion left over from the first round of aid.
Fewer companies will be entitled to a second check to direct the money and perhaps prevent companies like the Los Angeles Lakers and Shake Shack (SHAK) from accessing loans, as they did the last time before repaying the money.
Forgotten loans will be limited to $ 2 million instead of $ 10 million and companies cannot have more than 300 employees instead of the initial 500. Companies must also be able to demonstrate a drop of at least 25% in revenue from a year earlier in a quarter, and they cannot be publicly traded.
New loans are likely to be defined similarly to the previous one; companies will disclose payroll costs and a formula will return the loan amount, usually 2.5 times the average monthly payroll. Certain types of businesses seem to qualify for a little more money, including restaurants, which face a harsh winter as customers become more reluctant to dine al fresco.
Small businesses will have until March 31 to access the new funds and the program outlined so far includes a number of other provisions – from tax deductibility of PPP expenses to allocation of money based on the types of credit institutions – that lawmakers expect provide additional relief and direct the money only to companies that need it.
The rewrite of the rules was prompted by ongoing revelations of how big companies managed to access these loans this year. Earlier this month, the Washington Post reported that more than 1,000 Sonic Drive-In restaurants received more than $ 100 million in PPP loans in 2020 “despite the fact that Sonic is supported by a private equity giant and performs well during the pandemic. “
‘Process a little easier’
Another important feature of the bill is the simplification of the loan forgiveness process for smaller companies.
This part of the bill emerged from legislation initially proposed by a bipartisan group of lawmakers to allow the smallest company – those with a loan of less than $ 150,000 – to have their debts forgiven if the recipient simply fills out a one-page form and attests that the resources were used in accordance with the PPP guidelines. The current loan forgiveness form requires detailed accounting of how the money was spent.
The idea here is to give these companies “a slightly easier process of getting the loan forgiven,” said Rep. Chrissy Houlahan (D-PA), one of the project’s sponsors, in a recent interview with Yahoo Finance.
The Consumer Bankers Association – through President and CEO Richard Hunt – was quick to celebrate the simplified process of forgiveness.
“Instead of worrying about bureaucratic paperwork, business men and women can focus on reopening, growing local economies and paying their employees,” he said in a statement.
An analysis earlier this year estimated that, if the project were approved, these companies would save billions of dollars and “70 million hours of owner work” by reducing paperwork.
The bill stipulates that the SBA has 10 days from when Trump signed the bill to provide more details, suggesting that more detailed guidance could come at the beginning of the new year.
Ben Werschkul is a writer and producer at Yahoo Finance in Washington, DC.
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