The stimulus package recently passed by Congress could provide a significant windfall for small businesses as it offers them a second shot at government-backed loans and an easier loan forgiveness process.
The comprehensive $900 billion stimulus package includes $284 billion in Paycheck Protection Program loans, which are expected to become available to both new borrowers and existing borrowers who fall under the “second draw” criteria.
The colossal 5,600-page bill called the “Consolidated Appropriations Act of 2021,” has not been signed by the president, although he is expected to do so as early as today.
The U.S. Small Business Administrationhas 10 days from law enactment to solidify the guidelines around this new round of funding, making the holiday season a little more interesting than expected for SBA staff and financial industry employees.
Second draw candidates will have to meet stricter criteria than they did in spring – only companies with 300 employees or less will be eligible for second loans, down from the limit of 500 as prescribed during the first round of PPP.
Additional loans will be capped at $2 million rather than the $10 million limit during the first iteration of the program. Applicants seeking a second loan will also have to prove that their sales in at least one quarter of this year dropped by 25% compared to a prior quarter in 2019.
The new law may also prevent publicly traded companies from applying for PPP funds, a provision added after multiple large companies returned PPP funding following public pressure.
The bill also streamlined the process for borrowers of less than $150,000. Those small businesses will be required to sign a one-page attestation to verify that the money was used as intended.
As of August, 85% of PPP borrowers nationwide received loans of $150,000 or less, but those loans only accounted for 26% of PPP funds obligated.
The simplified process will prove a boon for banks, who in addition to the Wisconsin Bankers Association, believed the former loan forgiveness process was too demanding for small businesses with limited resources.
"We're very pleased about that," said Rose Oswald Poels, SBA president and chief executive officer. "The law gives SBA 24 calendar days to create the application and any rules they would develop with the application."
Oswald Poels expects the new one-page loan forgiveness form will become available within the next month. However, documentation required for loans of more than $150,000 remain unchanged.