How to get a small-business loan from the new $284 billion PPP program

Biran Patel, 2nd from left, vice chairman of the Asian American Hotel Owners Association, joined other small business owners in standing with President Donald Trump during a Rose Garden announcement about the administration’s new rules governing health reimbursement arrangements (HRAs) on Friday, June 14, 2019. (Photo courtesy AAHOA)

On Friday morning, Jan. 15, 2020, the Small Business Administration gave small banks the go-ahead to start offering subsidized Paycheck Protection Program loans from the newly approved $284 billion small-business aid package, the latest step in a phased rollout designed to ensure the loans reach the neediest small businesses first.

The PPP lenders portal is open to all lenders with less than $1 billion in assets under management. That bar excludes large lenders including Bank of America and JPMorgan Chase, while opening up the program to about 5,000 small lenders including community banks, credit unions, and farm credit institutions. Larger financial institutions will be able to make loans beginning Tuesday, the agency said.

The phased rollout marks a more deliberate, targeted approach by the SBA and Treasury Department to distributing the latest round of PPP funds. The SBA is responding to criticism that larger, well-banked borrowers had an advantage over their less-established peers when the first loans became available in April.

The new rules are intended to “ensure this round of funding goes to those who need it most,” a senior administration official said in a Jan. 8 call with reporters.

The new loans should provide much-needed relief to a still-struggling business community. They come as the U.S. economy shed 140,000 jobs in recent months as the coronavirus pandemic reached its worst point yet.

Over the last nine months the SBA has issued more loans than it did at any time its 68-year history. The $284 billion in new funds authorized for PPP bring the program’s total funding to $806 billion.

The initial round of loans helped the U.S. economy recover somewhat in April and May following the initial economic shock of coronavirus-related closures. But the 8-week loans could only go so far; many PPP recipients closed or laid off employees after their loans timed out. Before this week, no loan recipients have been allowed to double-dip.

“A second round of PPP could not have come at a better time, and the SBA is making every effort to ensure small businesses have the emergency financial support they need to continue weathering this time of uncertainty,” SBA administrator Jovita Carranza said in a news release.

Treasury Secretary Steven Mnuchin said the loans “will allow small businesses to keep workers on payroll and connected to their health insurance.”

The new rules include a number of restrictions passed down from Congress and some others devised by the SBA and Treasury Department.

So-called community financial institutions tasked with serving low-income, minority-owned and other disadvantaged businesses were given a head start over their larger peers. A new size standard and means testing will block many of the larger, wealthier businesses that received help last year. And a new automated review system will now kick in before borrowers can access their funds.

Below are answers to some key questions facing business owners and those they employ. (This FAQ will be updated as new information becomes available.)

– My company already received a PPP loan. Can it get another one?

The SBA is allowing some first-time recipients to get a second PPP loan, but not all of them.

To be eligible for a “second-draw” PPP loan a business can’t have more than 300 employees. Businesses receiving second-draw loans must have experienced a 25 percent or more reduction in revenue in 2020 compared to 2019. (This calculation does not include loan forgiveness)

– Which businesses are eligible?

Those eligible to receive PPP funding for the first time include businesses that meet established SBA size standards, independent contractors and 501(c)(3) nonprofits. The SBA also made some new business categories eligible which had previously been shut out, including 501(c)(6) organizations such as local chambers of commerce, housing cooperatives and direct marketing organizations. There is a more stringent set of requirements for second-draw loans.

Detailed eligibility requirements can be found starting on page 13 of this document for first-draw loans, and on page 5 of this document for second-draw loans.

– What period do the loans cover?

PPP loans can cover any length between 8 and 24 weeks depending on what best meets the business’ needs, according to SBA informational materials. The interest rate is still 1 percent.

– How much funding can I get?

If your company is receiving a PPP loan for the first time, you can receive up to $10 million. Second-draw loans are capped at $2 million. In both cases the amount of funding you receive is based on your payroll for the previous year.

– What kinds of expenses can a PPP loan cover under the new rules?

While the program was initially limited to payroll expenses, the new PPP funding can also be spent on a range of new expenses including operations expenditures, property damage costs, supplier costs, and worker protection expenditures.

The rules for how PPP funding can be spent are included on page 48 of this document.

– How soon can I get a PPP loan?

Community finance institutions can start issuing PPP loans to first-time recipients on Monday, Jan. 11, a senior administration official said Friday morning. Those same lenders will be able to offer new loans to companies that previously received PPP loans starting two days later on Wednesday, Jan. 13.

The SBA is phasing in larger banks over the next week. Lenders with $1 billion or less in assets will be able to process first and second-draw loan applications starting Friday, January 15. The program will open fully to all banks four days later on Tuesday, January 19.

An SBA official speaking on the condition of anonymity said in a Friday media call that loans would not be issued instantaneously because the government is putting in place a new automated evaluation system designed to manage borrowers’ identities and verify business data. The agency has released little information about what these new checks would entail or how long they will take.

– How do I apply on behalf of my small business?

Paycheck Protection Program loans are accepted, processed and disbursed by a network of SBA-approved lenders. They are listed by state here and through the SBA’s online lender match tool here.

If you’re a first-time PPP applicant, use this form. If you’re applying for a second PPP loan, use this one.

– Is the funding likely to run out?

The first round of PPP funding, which started in April 2020, ran out in a matter of weeks as a panicked business community quickly applied for loans. The second round, by contrast, finished the year with more than $100 billion leftover.

SBA and Treasury Department officials say they believe the current $284 billion round of funding will be more than enough.

“We don’t anticipate the money running out,” said a senior administration official involved in implementing the PPP program.

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