The first round of money authorized for paycheck protection loans -- some $349 billion -- lasted 14 days.
The second round of money -- $310 billion -- has been available since April 24. When that funding was released, many banks cautioned that they already had enough applications in queue to soak up all the money, even if no new applications came in. As of May 8, according to the SBA, $189 billion in loans had been approved. As of May 14, at least some money remains.
Why has this second tranche of money lasted so much longer? "With hindsight, the world has completely changed from Round 1," says William McDevitt, head of the tax practice at accounting firm WilkinGuttenplan, which serves clients from offices in New Jersey and New York City. Many companies first got PPP loans thinking the eight-week forgiveness period would be enough time to get them to a reopening. That now seems less certain, causing many to wonder if the loans, while potentially good for employees, are also good for small businesses.
The most obvious reason that PPP money remains is that the average loan size has come down dramatically -- from $206,000 in the first tranche to $73,000 in the second round. That's partly because self-employed individuals and other single-person businesses weren't allowed to apply for the loans until April 10, a full week after employer businesses became eligible. It's also because banks made it clear that they would take applications from their own customers, and those with whom they already had credit relationships, first. Those tended to be larger businesses. And the very smallest businesses are the ones least likely to have accountants and other advisers to help them through the applications process.
But that's not the only reason that PPP money hasn't run out as expected.
Plenty of business owners don't understand if they're eligible
Business owners who apply for a PPP are required to certify that they need the paycheck protection loans for their "ongoing operations." Those who decide they don't need the money have until May 18 to return it without any consequences.
Unfortunately, no one has been clear about exactly how dire the need has to be for a business to keep the loan. Does a business have to exhaust its line of credit first? "People are scared of repercussions after the fact," says Sarah Jennings, a principal at Lansing, Michigan-based accounting firm Maner Costerisan. On May 13, the Small Business Administration addressed this confusion, saying that businesses that received loans of less than $2 million will be assumed to have been acting in good faith.
The tax treatment changed
Business owners don't have to count any money from PPP loans as revenue. But generally, businesses can deduct money used for payroll and other legitimate business expenses from their taxes. Business owners expected that to be true if those expenses were paid for with PPP money. On April 30, the IRS released a ruling saying business owners will not be able to deduct those expenses if they were paid for with PPP loans. For many business owners, that makes the PPP loans less financially attractive. It also creates a whole new bookkeeping hassle.
Some banks aren't taking applications
Accountants and business owners report that many banks have stopped taking applications for paycheck protection loans. Some business owners, when they find out their own bank isn't taking applications for the loans, simply assume that the program is finished, says Jennings. "There is money available, but people don't know where to go," she says. Business owners who are still trying to apply for PPP loans should approach their community banks or any of a number of fintech lenders.
Forgiveness rules are unclear
If business owners use the money on certain approved expenses -- most notably, if 75 percent of the loan amount is used for payroll within eight weeks -- then the loan is supposed to be forgiven, turning it into a grant. When the Cares Act was passed, Congress promised more details by April 26. That guidance still hasn't arrived, leaving business owners unable to answer what should be basic questions: If they pay bonuses to their employees, will that count toward loan forgiveness? What if you get your loan in the middle of a pay period -- can you get forgiveness for all the money you spend on that pay run, or only part of it? Without more guidance, business owners are concerned they won't qualify for loan forgiveness.
Businesses are still closed
At the end of March, when the Cares Act was passed, many small businesses probably thought they'd be open for business by the time their eight-week loan-forgiveness period was up. The paycheck protection loans looked like a bridge toward an eventual reopening. That's changed. "The paycheck protection program doesn't work for a business that's already closed," says McDevitt. Business owners are upset that they'd have to use the money to pay employees to do nothing--even though that is the intent of the law--but might not have money to pay employees later, when they're allowed to reopen. For those businesses, the paycheck protection loans replace unemployment assistance. It's a lot less hassle, and risk, for business owners to ask their staff to go on unemployment than it is to get a PPP loan.
On May 11, Treasury secretary Steven Mnuchin said he'd be open to a "technical fix" for this problem, but only for restaurants. That could mean extending the loan forgiveness period beyond eight weeks, and it would require the cooperation of Congress.