The Small Business Administration, in consultation with the U.S. Treasury, announced Friday that on January 11 it will relaunch the Paycheck Protection Program for borrowers at so-called community financial institutions. That's two full days before the portal opens to second-draw PPP borrowers on January 13. The PPP is now a $284 billion refundable loan offering aimed at struggling small businesses. Eligible second-draw borrowers include businesses that have already exhausted their first PPP loans or will do so soon, have 300 or fewer employees, and suffered at least a 25 percent drop in quarterly revenue from 2020 over 2019.
The goal of the measured rollout, according to the guidance provided by the two agencies, is to ensure increased access to PPP for minority, underserved, veteran, and women-owned businesses. Lenders like community development financial institutions (CDFIs) and local banks tend to work with smaller borrowers that may be less polished and thus require more handholding.
"This updated guidance enhances the PPP's targeted relief to small businesses most impacted by Covid-19," Treasury Secretary Steve Mnuchin said in a statement. "We are committed to implementing this round of PPP quickly to continue supporting American small businesses and their workers."
That doesn't mean there won't be problems. For starters, as of Friday the actual loan applications were still unavailable. (The SBA did not respond to Inc.'s request for information on the status of loan applications.) And even if the applications were available, lenders haven't yet had the chance to build out their systems for the program, notes Ami Kassar, the founder and CEO of MultiFunding, a small-business loan adviser based in Ambler, Pennsylvania.
"The 'early access' announcement does not do justice to the urgent need for education, mentorship, and guidance," Kassar said in a statement. "The SBA, banks, and private industry must do everything possible to provide the help, resources, and knowledge so that underserved communities can understand the loan and grant options available to them."
Further, the complexity that comes with adding the second-draw loans will throw a wrench into the rollout, says Dan O'Malley, CEO of Numerated, a Boston-based digital lending platform for banks: "This program is increasingly feeling like the tax code." As an example, he notes that of the 124 pages of guidance, 16 pages are dedicated to how to calculate your loan amount.
Just as in the first round, most PPP2 loans use the same multiplier--that is, 2.5 times a company's average monthly payroll for 2019. "But not if you're a restaurant, hotel, or news agency," says O'Malley. "And if you're a rancher or you're a farmer, you can take a look at it differently too." Indeed, the size of a PPP loan open to restaurants and hospitality companies--those with North American Industry Classification System (NAICS) codes beginning with the number 72--will be the lesser of 3.5 times their 2019 or 2020 average monthly payroll costs, or $2 million.
Per the guidance, you may also now use your 2020 payroll data, which can be helpful for maximizing your loan amount. To calculate your revenue loss, you can pick any single quarter from 2020 in which your company's revenue dropped at least 25 percent or you can choose to annualize your numbers--that is, compare your 2020 revenue with 2019 numbers. The time frame of your revenue loss and the payroll time frame can be different.
"Can a banker who is supposed to walk a customer through this, can they even do it anymore?" asks O'Malley. "I feel like banks are going to have two choices: They're going to have to get accounting professionals involved, or they're going to have to have a system like TurboTax for PPP."
Also, as of Friday afternoon it was not entirely clear what the SBA means by "community financial institutions"--even among banking experts. Paul Merski, group executive vice president of congressional relations and strategy at the Independent Community Bankers of America, a small-lender trade organization, said it would make sense that the institutions getting setasides would be included. That means CDFIs, which typically operate in lower-income communities; lenders and credit unions with less than $10 billion in assets; and minority depository institutions (MDIs) would get first crack at the program. A release sent out to banks just prior to publication listed CDFIs, MDIs, microlender intermediaries, and certified development corporations as eligible first-day lenders. In other words, community banks will have to wait.
Also, the SBA's back-end loan guaranty, or "E-Tran," system is getting a facelift. O'Malley says SBA is launching a new application interface for lenders to enter information manually. They're not eliminating E-Tran, confirms Merski, who has been in touch with the agency about this latest rollout, but adding a new access to it. "That might involve a learning curve or technical hurdle to start using a new system," adds Merski.
The guidance does offer to ease the process too. Some borrowers heading back to their first PPP lender may see reduced paperwork requirements, for instance. The guidance stipulates that borrowers seeking second-draw loans under $150,000 from the same lender that administered their first PPP do not need to resubmit payroll documentation. But O'Malley notes it's good to supply that data all the same. "The lender could choose to ask for it anyway," he says.