Small businesses across the country gobbled up the first round of federal payroll loans in less than two weeks.
The paycheck protection program had its flaws, as did most massive backup plans designed almost overnight and deployed at lightning speed. The idea was to bring cash to companies – most with fewer than 500 employees – so they could withstand the initial devastating punch from the coronavirus.
The federal government agreed to cancel the loans if the companies met several requirements, including using most of the money to pay employees for the next two months.
To businesses, it seemed as close to free money as it comes. No wonder the program spent $ 349 billion so quickly. (The Tampa Bay Times and its related companies received a loan of $ 8.5 million.)
When Congress agreed at the end of April to add an additional $ 310 billion, it seemed certain that the money would disappear just as quickly. Less than 1.7 million of the country’s 30 million small businesses received a loan in the first phase. The banks that distributed the funds said thousands of other companies had pending requests when the money ran out. Many small business owners have complained that they feel sidelined by larger competitors who have profited from past banking relationships.
But nearly three weeks after the second pot of money became available, there is plenty left, around $ 115 billion.
The tap has also slowed down in recent days. Banks have approved on average about $ 16 billion in loans per day since the start of the second phase from April 27 to May 8. Over the past week, the number has fallen to less than $ 1 billion a day. At this rate, it would take at least until September to donate all the money, well after the program ended on June 30.
So why the fall?
Some big brand name companies probably thought twice before applying after the public disgrace endured by Shake Shack, the Los Angeles Lakers and Ruth’s parent company Chris Steak House, all of whom either refunded the money or didn’t. accepted the loans. . The Treasury Department, which oversees the program, has also prohibited publicly traded companies and others that can obtain funding elsewhere from obtaining Paycheck Protection loans.
Another factor: many companies have applied for loans from several banks, hoping to increase their chances. They could only accept one, so the duplicates inflated the first set of numbers.
Tom Zernick, president of First Home Bank’s small business lending division, said most of the larger, more sophisticated businesses that needed million dollar loans had already taken advantage of the program.
The numbers back it up: About 4% of phase one loans were over $ 1 million, according to the Small Business Administration. In the second phase, it’s less than 1 percent.
This leaves the second phase to small businesses with a lower payroll. The First Home Bank, for example, approved around 2,500 loans worth a total of $ 525 million during the first phase. In the second phase, the bank has already approved more loans – around 2,600 – but for only around $ 260 million.
Zernick added that independent business owners were excluded during the first week of the first phase. Now they can apply and are often only looking for $ 10,000 to $ 25,000, he said.
“For us, the average loan amount has halved,” he said. “I think something similar is happening in other banks as well.”
From the start, business owners and their lawyers balked at the lack of guidance on how to ensure that the Treasury Department canceled loans. Persistent uncertainty has prevented some companies from applying. Other companies don’t think they can spend 75% of the loan on payroll, one of the requirements.
The last thing many struggling small businesses want is to add debt that they will have to pay off, even at ultra-low interest rates.
“I think companies are starting to take a second look at it and think, ‘Maybe I don’t need this right now,’” Zernick said.
He hopes Congress will mix any remaining paycheck protection funds into traditional Small Business Administration loan programs, which can help businesses pay rent and pay off high-interest loans.
He encouraged any small business that needs help paying their employees to consider a loan with paycheck protection, while it lasts.
“Contact your bank to determine if you are eligible,” he said. “It’s a good program.
And a lot of money is still available.
Paycheque Protection Program
First phase: 1,661,367 loans for a total of $ 342.3 billion.
Second phase: 2,686,493 loans for a total of 193 billion dollars. More than $ 116 billion remained to lend as of Thursday. The program ends June 30.
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