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SBA loans: The money problem

2020-4-15 - iStock-1141917741 - SBA Snags - blog.jpg

There are more than 30 million small businesses in the US. As of late last week, some 70% of them tried to apply for an emergency loan through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As of last Monday morning, fewer than 1 million of those applications had been approved by the US Small Business Administration (SBA), for a total of $217 billion, according to Fortune.

If your practice is one of those small businesses and your loan application hasn’t been approved yet, you’d have been justified in wondering, “Is the money going to run out before anyone sees my application?”

Turns out, the answer was yes.

Because the White House announced Thursday that the PPP had, in fact, run out of money, and Congress was scrambling to find a way to re-fund it.

That $217 billion accounted for nearly two-thirds of the $349 billion allocated by Congress for the Payroll Protection Program (PPP) portion of the CARES Act, which authorizes the forgivable loans through the SBA to small businesses to pay their employees during the COVID-19 crisis.

Another chunk of funding was allocated for the Economic Injury Disaster Loan (EIDL), a long-standing SBA loan program managed by the government (rather than the banks). With a purpose to provide immediate cash to struggling businesses waiting on loan approvals, this program gives cash advances of up to $10,000 to businesses facing a short-term cash crunch.

Approved lenders started taking applications on April 3, and they continue to flood in.

But it’s unclear how many of the thousands of businesses that have applied for these loans have received them, if any.

A survey by the National Federation of Independent Business (NFIB), a trade group for small and independent businesses, reinforces concerns that the $349 billion fund will run out of money before all applications can be submitted, much less considered: of the 30% of small businesses who have not actively tried to apply, one-third plan to in the next month, and another 36% are thinking about applying.

The NFIB reports that the PPP, which is largely operated by banks (with SBA oversight), and the Economic Injury Disaster Loan (EIDL) “have yet to deliver the loans, frustrating small business owners who are in immediate need of financial support.”

It didn’t help that the PPP got off to a rocky start, with most big banks saying they weren’t prepared to start processing applications when the program launched two weeks ago.

About 72% of small business owners who tried to apply for a loan say they were successful in submitting an application, according to the survey, although only 4% had been approved. About 1% were rejected. Most didn’t get an answer.

There could be additional reasons for the confusion.

The NFIB said that because many banks are screening small businesses before giving them a formal application, it may be that some of those businesses didn’t realize that they’d completed only the first step in the process.

About half of small business owners had also applied for EIDLs. Like the PPP loans, EIDLs are forgivable and won’t have to be paid back if you met the criteria.

But that was assuming that the funds would still be still there to give out: at the time of the survey, none of the applicants had received either the loan or the emergency grant.

Then the White House made their announcement about the PPP running out of money, rendering the point momentarily moot. 

Because, as of press time, Congress could not come to an agreement on a way to re-fund the PPP, so both PPP and Economic Injury Disaster Loans will remain on hold until next week.

We’ll keep you informed on this developing story.

Photo credit: © iStock/Ratana21