On Jan. 11, the U.S. Small Business Administration (SBA) will reopen the Paycheck Protection Program (PPP) for low-interest loans that the administration will forgive as long as businesses keep within the guidelines of using the money for payroll and other eligible expenses.
Through 2020, up to 5.2 million loans worth $525 billion went to America’s small businesses, according to a press release from the SBA. The money went to businesses that experienced vast revenue loss during the shutdowns due to the novel coronavirus pandemic.
There was pushback from the public and especially small businesses last spring, once word broke that larger companies like Shake Shack, Ruth’s Chris Steak House, and even the Los Angeles Lakers had received financing before mom-and-pops had a chance to access funds. Though some corporations returned the loans (including those aforementioned), this time around SBA is staggering the lenders who are allowed to process loans, so smaller, underserved businesses get a fair shake.
Only community banks and financial institutions serving low-income and minority businesses will be allowed to process first-draw PPP loans on Monday, Jan. 11, then businesses applying for a second PPP loan will be able to on Wednesday, Jan. 13. Sometime thereafter, larger participating lenders will be able to process loans to other businesses that opened before Feb. 15, 2020.
Congress signed off on up to $284 billion in relief in December. The funds are available through March 31, 2021.
Updates were made to the PPP loan, easing restrictions on borrowers. Modifications include:
- Setting the loan period to be between 8 and 24 weeks
- Covering additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures
- Including 501(c)(6)s, housing cooperatives, direct marketing organizations, among other types of organizations
- Providing greater flexibility for seasonal employees
- Allowing certain existing PPP borrowers to request modification to their first-draw PPP loan
- Allowing certain existing PPP borrowers eligibility to apply for a second-draw PPP loan
Borrowers who want to apply for a second loan (up to $2 million) must follow SBA guidelines by:
- Using the full amount only for authorized uses
- Having no more than 300 employees
- Demonstrating at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020
“This updated guidance enhances the PPP’s targeted relief to small businesses most impacted by COVID-19,” according to Treasury Secretary Steven T. Mnuchin. “We are committed to implementing this round of PPP quickly to continue supporting American small businesses and their workers.”
More than 87 percent of loans from the first round were for $150,000 or less, with the average loan around $101,000. According to the SBA, 27% went to low- and moderate-income communities, with more than 70% of PPP going to businesses with fewer than 10 employees.
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