Stimulus Package is a Shot in the Arm for Small Businesses

The $900 billion stimulus package that President Trump signed into law last Sunday night provides much needed access to capital for small businesses that have been devastated by the coronavirus. It is well documented that small business owners have suffered disproportionately during the pandemic, and financial aid has been desperately needed among those businesses hit hardest by the effects of lockdowns and closure orders from local governments.

The new stimulus bill renews the popular and effective Paycheck Protection Program (PPP) that helped millions of small companies until it expired on Aug. 8. This next infusion of capital will help small businesses that are barely hanging on as the pandemic’s second wave sweeps the country and as local governments enact measures aimed at stopping its spread.

The so-called “PPP Second Draw” provides loans of up to $2 million for truly small companies that employ less than 300 employees and must have already used their initial round of PPP funding. Recipients must demonstrate at least a 25% reduction in gross receipts during the first, second, third, or fourth quarter of 2020 relative to the same quarter of 2019.

The legislation includes economic aid to minority-owned businesses and nonprofits to help them recover from the pandemic. The deal includes over $284 billion for forgivable PPP loans and dedicates set-asides for very small companies and lending done through community-based lenders like Community Development Financial Institutions and Minority Depository Institutions.

Among the highlights:

• $15 billion for PPP loans (initial and second draw) issued by community development financial institutions (CDFIs) and minority depository intuitions (MDIs) and $15 billion for PPP loans (initial and second draw) issued by certain small depository institutions.
• $35 billion for first-time borrowers, $15 billion of which for smaller, first-time borrowers with 10 or fewer employees, or loans less than $250,000 in low-income areas;
• $25 billion for second draw PPP loans for smaller borrowers with 10 or fewer employees, or loans less than $250,000 in low-income areas.
• $50 million for PPP auditing and fraud mitigation purposes.

This deal also includes $15 billion in dedicated funding for live venues, movie theaters, and cultural institutions that have seen their attendance evaporate in 2020. Known as Shuttered Venue Operator grants, this will become a new program altogether designed specifically for theater and entertainment venues that have been closed due to strict social distancing requirements.

Changes in the program were made because many mid-sized firms and larger corporations were able to secure funding during PPP's first round while the smallest companies were shut out. The new law also expands the allowable expenses and forgivable uses for PPP funding. These include:

• Money spent on software, cloud computing, human resources, and accounting needs.
• Costs related to property damage due to public disturbances that occurred during 2020 and were not covered by insurance.
• Supplier costs that are essential to the recipient’s operations. For instance, restaurants’ purchases of perishable goods can be made before or during the life of the loan.
• Personal protective equipment and adaptive investments that help a PPP borrower comply with federal and/or health and safety guidelines related to COVID-19.
• The hard-hit hotel and restaurant industry will receive loans of up to 3.5 times their average monthly payroll costs (higher than the 2.5 times payroll for other businesses).

The exceptions are those borrowers who have already had their PPP loans forgiven.

For small loans of $150,000 or less, the borrower may submit a certification attesting that the organization meets the revenue loss requirements on or before the date the entity submits its loan forgiveness application. PPP Second Draw borrowers would be eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent, and utility payments, along with the expanded covered operations expenditures, property damage costs, supplier costs, and personal protection expenditures incurred during the covered period. (The 60/40 cost allocation between payroll and nonpayroll costs in order to receive full forgiveness will continue to apply.)

Delivery of this finding has to come quick. The SBA and its partner bank lenders were initially overwhelmed by the response to the PPP initiative. However, the SBA then smartly enlisted the help of FinTechs, such as Biz2Credit, to be SBA lenders for the PPP initiative. This helped quicken the funding process and broaden the range of businesses that were able to receive funding from the program.

At Biz2Credit, we are already taking steps to prepare for the second round of the PPP (so-called PPP2). We have begun encouraging business owners to submit a pre-application for the program so they can be sure their business is ready when the program officially opens. Tens of thousands of business owners have already started their pre-applications, and the next week should see an even greater push as new guidance is forthcoming from the SBA.

With vaccines now being distributed across the country, hope grows for small business owners and the economy. The Biden administration has indicated that it will make expanding access to capital a priority. As the health situation improves, so should the financial situation of small firms, which create the lion’s share of America’s private sector jobs. In my view, that's a New Year's Resolution we should all be committed to keeping.