Main Street Looks Ahead to PPP Relaunch as Covid Outbreak Grows More Severe

Craig F. Walker | Boston Globe | Getty Images
  • The Paycheck Protection Program has been renewed with a $284 billion infusion.
  • The program will relaunch Monday and run through March 31.
  • Aid is desperately needed as data shows the number of open businesses in the U.S. fell by nearly 30% last year, according to Opportunity Insights. It remains to be seen how many closures become permanent.

With the renewed Paycheck Protection Program launch imminent, small business owners and advocates are eagerly awaiting access to much-needed lifelines as the Covid-19 pandemic continues to sweep the nation.

The Small Business Administration released new interim final rules for the program late Wednesday, and on Friday set a launch date of Monday, with loans available through March. The revamped program seeks to address issues of both fraud and access to capital for underserved businesses.

The SBA and Treasury Department said community financial institutions will be able to make PPP Loans to first-time borrowers on Monday. Then, on Wednesday, the lenders can offer PPP loans for second-time borrowers. The PPP program will open to all participating lenders shortly thereafter.

The SBA also said it will direct lender match borrower inquiries to small lenders who can aid traditionally underserved communities.

In addition, senior administration officials said there will be a time lapse between when applications are submitted by lenders and when they receive a lender loan number to ensure compliance, and it is unlikely loans will be approved same day.

The $284 billion program is reopening with a focus on businesses critics say were overlooked in prior rounds of aid. There's support for businesses with fewer than 10 employees, and separate allocations for community and mission lenders, and borrowers in low- and moderate-income communities.

The potential lifeline for small businesses comes as the U.S. has reported a record-high daily death toll on five of the past 10 days, according to data compiled by Johns Hopkins University. Meanwhile, on a more hopeful note, the pace of vaccinations is picking up as the rollout gains momentum.

Potential for more borrowing

Lending advocates are hopeful the new round of funding will help to bridge the gap in the program's first two cycles for both truly small companies and minority-owned businesses that may have missed out last year.

In the first two weeks of the program's launch last spring, larger companies, publicly traded companies and even sports teams were able to access loans. Officials said they anticipate there will be enough funding for first- and second-time borrowers.

"One of the biggest things we wanted to see was prioritization of the small businesses, those with 10 employees or fewer, mom-and-pops and non-employers," said Ashley Harrington, federal advocacy director and senior policy counsel at the Center for Responsible Lending.

"Beyond that, there are set-asides for Community Development Financial Institutions and Minority Depository Institutions, which are the lenders that have best served communities and borrowers of color," she said. "It's very helpful to ensure we are getting funds to the businesses who were left out of the initial round of funding, who have been struggling for a while and that are in communities being hardest hit both by the pandemic and the economic fallout of the pandemic."

House Minority Leader Kevin McCarthy, Republican of California, speaks during a press conference on small business relief during the Covid-19 pandemic, on the steps of the US Capitol in Washington, DC on December 10, 2020.
Andrew Caballero-Reynolds | AFP | Getty Images
House Minority Leader Kevin McCarthy, Republican of California, speaks during a press conference on small business relief during the Covid-19 pandemic, on the steps of the US Capitol in Washington, DC on December 10, 2020.

Businesses with fewer than 300 employees that demonstrate a 25% decline in revenue are also eligible for second-draw loans, with a maximum loan amount of $2 million. First-time borrowers can access as much as $10 million. The revamped PPP also streamlines forgiveness for smaller loans, under $150,000, and allows businesses to claim deductions on covered expenses.

Recent data from the National Federation of Independent Business show that a quarter of small businesses say they will have to close their doors in the next six months if economic conditions don't improve, up from 20% last month. In addition, 91% have used their entire PPP loan, and nearly half say they'd go back for more.

"I do get the sense there will be more take-up from the new round of PPP, because even though it closed with money left over, I think the outlook and business situation has changed since August," said Molly Day, vice president of public affairs at the National Small Business Association. "We're facing more mandated business and school closures than anticipated a few months back, and I suspect that many of those most in-need small businesses will take a second draw and those who either didn't apply or weren't approved will consider applying again."

Enough to stay afloat?

The need for aid is great, but for many the PPP funding might not be enough to stay afloat.

According to Opportunity Insights Economic Tracker, the number of open businesses in the U.S. declined by 29% from January 2020 through Dec. 9, 2020. Given that the latest census data projects there are more than 31 million small businesses in America, and 6 million of those employ workers, this estimate means that more than 1 million companies with workers could have closed last year. It's unclear how many will become permanent closures.

"The bottom line is that small businesses need customers, and the aid package amounts to a temporary bridge to an uncertain economic landscape," said Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, in a statement to CNBC. "There are just some sectors where aid from the government is not going to help given the financial hole some are currently in, and what will be a very long recovery period, along with forever-altered customer preferences or habits."

—CNBC's Betsy Spring contributed to this report.

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