It
took just two weeks for the federal government’s $349 billion Paycheck Protection Program funds (part of the CARES Act) to run dry, leaving many businesses without access to an invaluable resource intended to abate the economic impact of the COVID-19 coronavirus.
Companies left in the lurch were either too little too late in applying for the funds or fell behind businesses with a staff size large enough to expedite the loan application process. Lawmakers are expected to replenish the PPP program (at press time a deal had been reached by Congress and the White House for a new stimulus package, including another $320 billion for PPP, and the bill had been approved by the House and Senate), but experts say the funds may not be enough and could run out even faster than the first round of the PPP did.
“The number they’re talking about…I’m concerned, is not going to be enough for the demand that still exists across the country,” said Rose Oswald Poels, Wisconsin Bankers Association president and chief executive officer.
Although many businesses will have a second crack at the PPP program, some companies remain ineligible, while others will continue to seek financial relief that fits their specific needs.
The Small Business Administration’s Economic Injury Disaster Loan is another option that business owners are heavily considering, especially for owners who can’t meet the hiring requirements of the PPP.
The Economic Injury Disaster Loan program offers businesses with 500 or fewer employees a loan of up to $2 million and includes a grant of up to $10,000. EIDL can be used to fund expenses like payroll, fixed debts and accounts payable. The loan carries an interest rate of 3.75% for businesses and 2.75% for nonprofits and a term of up to 30 years.
As of April 20, the SBA was no longer accepting applications for the program due to a lack of funds, but the program would receive an additional $60 billion in the new stimulus package, according to reports.
SBA also offers several debt-relief options for individuals who currently have 7(a), 504 loans or microloans. Depending on the loan and when it was obtained, borrowers could have their principal and interest paid for a period of six months.
The Main Street Lending Program may be an alternative to businesses who were either ineligible or did not have access to the PPP. The program was first announced March 27 as part of the CARES Act and is aimed at providing relatively low-interest loans to companies with as many as 10,000 employees.
The program, which is expected to support up to $600 billion in new loans, was not yet available to businesses as of April 20. However, the Federal Reserve released details on the program recently and it could be rolled out in the near future.
Unlike loans through the PPP, Main Street loans need to be repaid in full. The loans come with four-year terms and variable interest rates ranging between 2.5% and 4%. Borrowers can defer payments on interest and the principal for one year.
The U.S. Chamber of Commerce has also deployed a grantmaking initiative called the Save Small Business Fund. The program provides short-term financial relief in the form of $5,000 grants for small businesses.
To qualify for the grant, a business must have been financially impacted by COVID-19, employ between three and 20 people and be located in an economically vulnerable community.
The Wisconsin Economic Development Corporation launched a $5 million grant program to assist the “smallest of the small” businesses around the state. The program, known as Small Business 20/20, provides grants of up to $20,000 to targeted businesses with no more than 20 employees. The funds can be used to cover rent, meet payroll expenses, including paid leave as well as sick, family and other leave related to COVID-19.
Businesses may also look to their local municipalities for financial support intended to protect small businesses in the community. Communities like Racine and Wauwatosa have developed their own disaster relief funds to keep businesses in operation.
Over the course of 14 days, the SBA disbursed 14 years’ worth of loans, said Tammie Clendenning, SBA lead economic development specialist. As of April 15, a total of 1,661,367 loans were approved for a total of $342.2 billion through 3,975 lenders across the country. Wisconsin approved 43,395 loans for a total of $8.3 billion, according to an SBA report.
The overall average loan size for businesses in the United States and territories was approximately $206,000. Loans of $150,000 and under composed approximately 74% of all loans disbursed while nearly 22% of loans disbursed were between $150,000 and $1 million. Loans between $1 million and $5 million accounted for just over 4% of all loans disbursed, according to the SBA report.
For those who were approved for PPP, creating an intermediate cash flow forecast before accepting the PPP proceeds gives business owners increased visibility, an element that advisory firms like Illinois-based Sikich are developing with clients right now.
Loan forgiveness is one of the most attractive elements of the PPP program. However, depending on the business, achieving maximum forgiveness may not be the best strategy, said Ray Lampner, Sikich partner. Take a restaurant, for example. It may not make sense to keep all employees on payroll to achieve loan forgiveness when the restaurant is either closed or not operating at full capacity.
State lawmakers and organizations are working on a plan to reopen the economy, but it’s not clear what that process will look like or how long it will take. As the economy wakes up from its slumber, businesses will need cash flow to restock inventory, catch up on rent and fund other expenses needed to reopen.
The concern, Lampner said, is that businesses will have spent their PPP loan to maintain payroll only to run into another financial hurdle when the economy is up and running.
“I’m working with a group of manufacturers and they are more interested in having the cash than staying open because they have no idea how long this is going to go on,” Lampner said. “Once you spend the money, you don’t have any access to it.”
Business owners might also consider the financial situation of employees. Depending on salary, some employees may be better off with unemployment funds than being paid with PPP funds, Lampner added.Â
