Note: This article was updated at 9:34 a.m. EDT on April 17 to reflect the changing timeline of PPP fund renewal.
At just before noon Eastern on Thursday--only 14 days after small businesses across America were first able to apply for loans through the $349 billion Paycheck Protection Program, or PPP--the U.S. Small Business Administration announced it had exhausted its allotted funds. The agency, which administers the PPP, shut down its application and ceased enrolling new lenders into the program.
That leaves many business owners scrambling. Some are still applying. Some are waiting for loan approval. Some are working with banks or companies that don't yet have government approval as an SBA lender. And while Congress is expected to sign off on additional PPP funding, some companies' survival may depend on finding other options.
A possibility for some: the Federal Reserve's new Main Street Lending Program.
The comment period for the Fed program, which is geared toward small and midsize businesses, ended April 16. Unlike PPP loans, which may be forgiven provided borrowers meet certain conditions (primarily related to keeping employees on the payroll), the Main Street Lending Program functions more like a traditional loan--although it comes with significantly low interest rates. The central bank estimates that the program, which is now open to companies with as many as 10,000 employees and will be run directly through lenders, will support up to $600 billion in new loans.
The Fed has said that firms that have taken advantage of the PPP may also take out Main Street loans. But there are some important differences between the programs:
- The interest rates borrowers can expect to pay on Main Street loans are variable and right now range from 2.5 percent to 4 percent. The PPP loans offer a 1 percent fixed interest rate.
- The repayment term for Main Street loans is four years. PPP loans have two-year terms.
- The smallest loan amount for Main Street loans is $1 million. There's no minimum loan amount for PPP loans. There are upward limitations on both programs, however. For PPP loans, the maximum loan amount is $10 million. Main Street loan sizes vary based on which Main Street Lending facility for which you apply. There are two: one for new loans and one for borrowers who have an existing loan through a given lender.
- While PPP loans may be fully or partially forgiven if companies apportion at least 75 percent of their loan proceeds to pay employees' salary, rent, and some utilities, Main Street loans may not be forgiven.
Since there's no minimum company size requirement for eligibility for Main Street loans, sole proprietors, self-employed business owners, and companies with fewer than 500 employees may apply. Smaller companies, however, are less likely to meet the financial requirements involved in the Main Street program, says Ami Kassar, the founder and CEO of MultiFunding, a small-business loan adviser based in Ambler, Pennsylvania. To be eligible, companies need to have at least $250,000 in earnings before interest, taxes, depreciation, and amortization (EBITDA) and no debt. Companies with debt have higher EBITDA requirements.
Businesses that don't meet the requirements of the Main Street program should stay apprised of the status of the PPP, which is expected to soon win congressional approval for new funding.
"The SBA has processed more than 14 years' worth of loans in less than 14 days," according to a joint statement from U.S. Treasury secretary Steven T. Mnuchin and SBA administrator Jovita Carranza. "The high demand we have seen underscores the need for hardworking Americans to have access to relief as soon as possible."