In order to put its own brand on the Pay Check Protection Program, the Biden government on Monday abruptly changed the program’s crucial rules to help smaller and more needy businesses, which have sometimes struggled to get help from the effort. federal aid.
But the changes are in danger of launching an already turbulent program into chaos as banks and other lenders try to accommodate last-minute changes. With only five weeks to go before March 31, when the last iteration of the program is scheduled to end, creditors have been struggling to adapt to the new rules that will not be fully explained to them by the end of this month.
The changes include a new way of calculating loans for freelancers and an exclusive 14-day window for enrollments from companies with less than 20 employees. The adjustments are aimed at increasing aid to smaller companies, many of which are run by women, blacks and members of other minority groups and have so far received a disproportionately small share of aid money.
“Recovering our economy means bringing our small businesses back,” said Biden in brief comments on Monday afternoon. The changes, he said, “will bring the necessary and long-awaited help for small businesses that really need help to stay open, keep jobs and survive.”
The Pay Check Protection Program was an exclusive effort by the Trump administration, disbursing $ 523 billion in forgivable loans to small businesses last year. However, the program was criticized for its random rules and hasty implementation, which often meant that the best-established and most well-connected small businesses – including law firms, political lobbyists and companies supported by private equity investors – obtained loans , while more vulnerable companies faced difficulties.
In December, Congress provided $ 284 billion in new resources to restart the program. The Small Business Administration, which runs it, began approving applications last month, in the last days of the Trump administration. To date, this year, around US $ 140 billion has been distributed to 1.9 million companies.
But with a wide range of eligible companies – from self-employed to companies with 500 employees – there has been a huge disparity in the way they obtain loans. One person’s operations, such as individual companies and independent contractors, have gone through particularly difficult times. And those who succeeded generally received minimal amounts – as little as $ 1.
To help these companies, the Biden government is overhauling the way its loans are calculated. Previously, their loans were based on the profit they reported on their annual taxes. This disqualified unprofitable businesses – a constraint that did not apply to larger companies – and limited the size of loans available to business owners who try to report as little taxable income as possible (as most companies do).
Loans to individual homeowners will now be based on gross revenue, a figure that excludes many expenses. This will allow unprofitable companies to qualify and many applicants to receive much larger loans.
But creditors do not yet have details on how to process the change, which Small Business Administration officials said will be held early next month. This puts them in a difficult situation: should they tell borrowers who are looking for loans now to pause their applications and wait for bigger loans? And what about those who have already received loans but are now eligible for larger loans?
Rohit Arora, chief executive of Biz2Credit, the program’s biggest creditor this year, took a deep breath when faced with these issues. “We just don’t know now,” he said.
More than 100,000 of the 140,000 loans your company has made this year have gone to individual homeowners. He fears the reaction of those who have already received loans.
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“Customers will be very, very upset, and they will all call us about it,” said Arora.
These customers are out of luck: the SBA will not retroactively alter loans that have been disbursed and will not allow those who have already obtained loans to return and reapply them, according to an agency official familiar with the plan, who was not authorized to speak. publicly.
Even those creditors who expect their customers to benefit were wary of yet another immediate review of the rules. Randell Leach, chief executive of Beneficial State Bank in Oakland, California, said it is frustrating when lenders try to help borrowers understand their options, only to see them keep changing.
“We will have as much access to people as possible, but constant changes really complicate delivery,” he said.
The 14-day freeze for larger companies also intrigued creditors.
Companies with fewer than 10 employees raised 80% of loans this year, receiving a total of $ 42 billion in loans – about 30% of the money the program distributed. More than half of the funding allocated by Congress remains available.
The biggest challenge, creditors said, has been a plethora of errors that prevent applications from undergoing new and more stringent fraud checks imposed by the Small Business Administration. These checks are incorrectly disqualifying some candidates and exposing errors that went unnoticed in the past year. Both problems require time-consuming intervention.
“This two-week window will not fundamentally change the obstacles that companies are facing,” said Richard Hunt, chief executive of the Consumer Bankers Association. “It’s like giving everyone a train ticket on an unfinished railway.”
There have been three other notable changes. Those with recent convictions for crimes not linked to fraud will now be able to apply, as will those who are in default or in default on federal student loan debt. The agency also updated its guidance to clarify that business owners who are not citizens of the United States, but who are legal residents, are entitled to loans.
Biden government officials see the changes as a response to long-standing disparities in the types of companies that have applied for and received loans – and a specific response to complaints from groups representing blacks, Hispanics and other owners of color businesses.
Officials said the two-week break would focus government officials, creditors and other stakeholders exclusively on reaching those types of companies that have no relationship with Washington banks or lobbyists and who may not be aware of the ability to apply for loans. A senior government official, who was not authorized to speak on Biden’s behalf on the matter, said the aim of the break was to get everyone focused on this type of business.
The White House remains confident that the program will have a significant amount of money remaining for other loans when the two-week period ends. Biden and his team did not ask Congress to postpone the March 31 deadline.
Small business advocacy groups generally praised the changes. Shaundell Newsome, co-president of Small Business for America’s Future, called them “a victory for America’s smallest companies and those belonging to people of color, many of whom were left behind by poorly designed rules that favored larger companies. “
Daniel Betancourt, the chief executive of the Community First Fund in Lancaster, Pennsylvania, who is working on loans for some 300 companies, most of them minority-owned, was also enthusiastic. But Betancourt would like to see the March 31 deadline postponed by at least 60 days.
“We need time to let owners of historically private copyright companies know what is available now,” he said.
For single owners like Elisha Trice, who have been plagued by delays, changing the formula is a silver lining for a painful process.
Trice, an independent contractor in Florida who makes computer games, obtained a $ 2,000 loan last year and applied for a second loan last month. Your app has been stopped for weeks and now it can put it on hold until the new formula goes into effect.
Trice, who lost his job at the start of the pandemic and is relying on his freelance work to support himself and his daughter, said the move could mean his next loan is more than $ 7,000.
“The fact that I am able to achieve more this time around is incredible,” he said.