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What to Do If You Missed Out on a PPP Loan. What Now?

When the Paycheck Protection Program Loan fund set up by the CARES Act ran through its initial public $349 billion in funding on April 16, numerous small business owners who had applied unsuccessfully for the forgivable loans were left wondering what to do next. PPP is a "forgivable" loan program established to cover the payroll costs (along with a few other expenses) during the period that businesses were being impacted by COVID-19. There was a mad rush to claim the new $349 Billion, leaving millions of small businesses with no funding.

What about the millions of businesses that did not receive the funding? What should you do?

Don't sit back and wait on the next phase of funding for the PPP.

If you missed out on this round of the PPP, waiting on the second round of stimulus is not the strategy. Focus your attention on cash-flow modeling and exploring other available incentives. If more PPP funds become available, be prepared to take advantage of them, but don't get paralyzed in the interim.

Reasons for Rejection

If you weren't able to get a loan before the first round of funding ran out, there may be a few reasons.

Remember, the CARES Act was passed on March 27 and the PPP loans had a launch date of April 3- only one week later. And on top of that, the SBA did not issue its Final Interim Rule, on PPP until April 2- just hours before financial institutions could begin accepting loan applications. That simply wasn't enough time for many banks to absorb and apply details in that final interim rule. Theres a number of reasons why money didn't make it into the hands of the smallest companies. To start of with, the application for self-employed individuals and independent contractors didn't even become available until April 10, less than a week before the program ran out of money. As a result, even though small businesses applied timely to such institutions, a number of those institutions did not move quickly enough to beat the stampede: all $349 billion was spoken for in less that two weeks.

Lender Policies and Practices:

Some major banks initially said they'd only loan to businesses with existing loans. Others restricted applications to clients with business checking accounts. Many lenders ultimately reversed themselves on these positions, without making it clear exactly which applications would receive preference, if any. It also seems apparent that banks favored larger loan requests by businesses with sizable numbers of employees before approving loans to sole proprietors, independent contractors and other small businesses.

In addition, while the SBA guidelines for eligibility were relatively straightforward, the criteria applied by the lenders who would actually be making the loans was much less so.

Some banks did not promptly process applications.

For example, Bank of America, for instance required its PPP Borrowers to have both a checking and credit account with the lender. Based on our experience and observations thus far, clients who have lets say a checking account at BOA and a credit card at Chase. Neither one of those banks {accepted} applications, so the {client} had to find a third bank they had no relationship with and put in an application in there. But obviously that bank is going to prioritize their existing relationships. Plenty of smaller businesses have checking accounts with a bank, but often they don't carry a credit line or other forms of debt. So those business owners were forced to try elsewhere.

Business Structure:

Some applications, especially those of sole proprietors and independent contractors, were rejected because they could not properly document payroll expenses. However, many sole proprietorships and independent contractors compensate their team members by contract rather than putting them on salary.

Some sole proprietor applications were rejected for lack of a 2019 Schedule C for proof of net income or not having lengthy enough payroll history because they started in late 2019 or early 2020.

Clearly, some industries appeared to have been favored. At the top of the list were construction companies, which got about 14% of the loans. Professional, scientific and technical services got about 12% of all loans, as did manufacturing businesses. Meantime, utilities, management services businesses and public administration all got less than 1% of the loans.

Other reasons include not being in operation before Feb. 15, 2020, and businesses having a 20% owner with a prior felony conviction or guilty plea.

Unsuccessful applicants had few options for finding out why their applications were not approved. Some major banks told applicants that customer service departments and branches couldn't answer or not, without provision for follow-up.

Re-Funding PPP

On April 21, congress reached a deal to allocate $320 billion to the PPP loan program. The deal sets aside $zero 60 billion for small lending institutions.

It's not clear whether existing applications might be approved or whether borrowers would need to re-apply. Some are advising applicants to be patient, in anticipation that prior applications may eventually be approved. Others suggest making additional applications to other lenders.

PPP Alternatives

Luckily, there are alternatives to PPP. The SBA has several loan programs that could help small businesses, including:

Economic Injury Disaster Loan (EIDL):

An EIDL is a loan of up to $2 million with a maturity of up to 30 years that is designed to help carry businesses through tough times caused by the disaster, such as COVID-19 pandemic. These funds are intended to cover payroll and other operating expenses that the business could have otherwise met in a non-disaster economy. The CARES Act supplemented the EIDL program with a forgivable EIDL grant of up to $10,000.

SBA Express Bridge Loans:

These allow small borrowers with an existing relationship with an SBA Express lender to get up to $25,000. These loans can. provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loans or used to bridge the gap while applying for another loan.

SBA Debt Relief:

This program will make payments on existing loans made under the SBA's 7(a), 504 and microloan initiatives. New loans made before Sept. 27, 2020, under these programs are also eligible for debt relief.

Other federal programs under the CARES Act can also help, including:

Pandemic Emergency Unemployment Assistance:

This allows sole proprietors, self-employed people, independent contractors and others not normally eligible for unemployment benefits to get them for up to 39 weeks.

Employee Retention Credit:

Employers may be able to get a refundable payroll tax credit for up to 50 % of the wages paid to each employee through December 31, 2020. This is also available for sole proprietors.

Delay of Employer Payroll Tax Payments:

Self-employed people can delay paying 50 % of their Social Security taxes for the period of March 27, 2020, to Dec. 31, 2020.

Delayed Income Tax Filing:

Business owners can wait until July 10ths 5, 2020, to file and pay income taxes for 2019.

New Business Tax Deductions: The CARES Act expanded deductibility of prior year net operating losses and business interest expenses.

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