The House, on Thursday, passed a new federal stimulus package to offer financial relief to the small businesses hit hard by the coronavirus. This new package will replenish the Paycheck Protection Program (PPP), which was exhausted very quickly. Many small businesses which were unable to get the funds in the first round, will want to know what they need to do this time to get this new PPP loan.
PPP second round: what does it include?
The new program is officially called Paycheck Protection Program and Health Care Enhancement Act. This program will allocate $310 billion in new funding for the SBA’s Paycheck Protection Program (PPP), $25 billion for COVID-19 testing and $75 billion for hospitals. One good thing about this new program is that of the $310 billion, $30 billion is reserved for small lenders with less than $10 billion in assets.
Another $30 billion is set aside for the lenders with assets between $10 billion and $50 billion. Such provisions (of $60 billion) will ensure the funds reach the mom-and-pop businesses, which were mostly unable to secure funding in the first round.
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The balance of $250 billion will be used to replenish the regular PPP loan program. It will be used to provide forgivable loans of up to $10 million each. This new program also includes additional funds for the EIDL program (Economic Injury Disaster Loan).
Similar to the earlier one, this program is also aimed at helping businesses with fewer than 500 employees. Another objective of the program is to incentivize companies to not lay off employees at a time when there is no economic activity due to the coronavirus outbreak.
The amount that the small businesses get under this program can be forgiven provided certain conditions are met. For instance, the businesses must use 75% of the money they get toward payroll costs. The balance amount they can use for mortgage interest, utilities and rent.
Small businesses: what do they need to do?
It has been widely reported that the initial funding for small businesses was unable to reach the targeted audience. Many small businesses that applied for the package, did not get any funds, nor did they get any update from their bank.
Such businesses now have a chance to get funds in the second round. To ensure their application does not get rejected this time, there are a few things that small businesses need to know and do.
The first thing that you need to do is contact your bank or the local CDFI immediately. If you submitted an application for the PPP loan in the first round and got no response, then inquire at your bank about its status. Also, you must know if the old application will be considered for the second round or not, or if you need to submit a new application.
Moreover, you must confirm if the bank needs any more documents or any other things to submit your request to the SBA. Also, inquire about the timeline (if any) and make sure that you keep in touch with the bank officials.
Another important thing you need to confirm is whether or not your bank is accepting (or will accept) applications for the second round of PPP funding. Experts say that many banks are still waiting to process the applications that they got in the first round.
You must also make sure that you have all the documents ready with you. If not, then do so quickly. Small businesses will need the following documents to apply for the new funding under the PPP loan – tax returns for the year 2018 and 2019, payroll records, the document verifying your business, and proof of how coronavirus has impacted your business.
Look for other options
Another point that could help small businesses secure funding this time is the provisions of this new bill. Remember, we said above that this new bill sets asides $60 billion for the small and mid-size lenders, including banks, credit unions and CDFIs (Community Development Financial Institutions).
This increases the chances of funds actually reaching the mom-and-pop businesses. However, so far, there has not been any guidance that such lenders will prioritize lending to mom-and-pop businesses.
Small businesses can also go for the funding under the EIDL program. Under this, the businesses get loans of up to $2 million and up to $10,000 ($1,000 per employee). Small businesses must evaluate this option as well, and decide if it is better than getting the funds under the PPP loan option. A point to note is that a business can’t get a loan under both PPP and EIDL.
Also, keep a close eye on the status of the bill. This new bill has still not turned into law. Make sure you apply for the funds as soon as this new bill gets approval. Ask your bank if they are accepting applications now, if yes, then submit it immediately.
Apart from the federal funds, it is recommended that small businesses also apply for any funding program initiated by states, municipalities and others.