Everyone is concerned about the shape (V, U, L, or K) of our nation’s economic recovery. Whether it’s V-shaped or K-shaped, the shape of your company’s recovery post-pandemic might depend on what is in the next government stimulus package for small and medium-sized businesses.
Keep reading for a brief update on the potential impact of stimulus proposals to the two main coronavirus emergency loan programs for small and medium-sized businesses (SMEs): the Paycheck Protection Program (PPP) and the Main Street Lending Program (MSLP).
The truth is the economy needs to shape up or 1 in 5 small businesses will be gone for good
In August, the National Federation of Independent Businesses (NFIB) reported that one in five small businesses they surveyed say their doors will close for good if the economy does not improve in the next six months. This outlook is especially troubling when you consider that SMEs account for 44% of U.S. economic activity.
Clearly, more government relief is needed for SMEs and the economy to recover.
The PPP is closed. What government relief from the COVID-19 crisis is there for SMEs?
The Coronavirus Aid, Relief, and Economic Security Act or CARES Act provided relief specifically to distressed SMEs through forgivable bridge loans, grants, and technical assistance.
The $669-billion Paycheck Protection Program (PPP) expired on August 8, 2020, with a whopping $130 billion in unallocated funds. Currently, government representatives are haggling over how to administer the remaining billions. More on what that could mean for your business in a bit.
Businesses impacted by COVID-19, hurricane season, or wildfires can apply for a low-interest Economic Injury Disaster Loan (EIDL) through the Small Business Administration (SBA). The loans are generally not forgivable. However, properly used advances of up to $10,000 ($1,000 per employee with a maximum of 10 employees) are automatically forgiven.
In addition to the emergency loans administered by the SBA, the Federal Reserve Bank initiated a $600 billion Main Street Lending Program (MSLP) under the CARES Act to assist small and medium-sized businesses (and qualified nonprofits) that either did not meet PPP loan requirements or needed more financial assistance than the PPP allowed.
Can I still apply for loan forgiveness?
Reshaping PPP loan forgiveness
In June, the PPP Flexibility Act eased the restrictions around loan forgiveness including:
- Increased the covered period from 8 to 24 weeks (168 days) that funding could be used.
- Partial loan forgiveness was made available to eligible borrowers who used less than 60% of the loan for payroll costs during the covered period.
- Loan forgiveness will not be impacted for borrowers unable to return to pre-COVID-19 business levels (rehiring FTE or hiring similarly qualified workers) and the date to reach the FTE salary/hourly wage rehire safe harbor was extended from June 30, 2020 to December 31, 2020 for fully restored pre-pandemic FTE levels.
- The deferral period was extended until after receipt of forgiveness compensation and those who do not apply for forgiveness have 10 months from the program’s expiration date (August 8, 2020) to begin payment.
The administration of the PPP has been far from perfect. The SBA continues to update the guidelines including an adjustment for loan forgiveness of $50,000 or less updated on October 8, 2020, after bank lenders and businesses complained about the onerous process.
Many ineligible SMEs are still waiting for government relief
Proposals have been made to improve the access to emergency loans for certain more vulnerable businesses in underserved communities such as:
- The SBA and Treasury must proactively engage with Engagement with Community Development Financial Investment (CDFI) Funds, Minority Depository Institutions (MDI), or Community Development Corporations (CDC).
- A percentage of the remaining $134 billion (and returned) PPP funds will be earmarked for businesses with fewer than 10 employees.
- Expand the types of organizations eligible for PPP to include hospitals, nonprofits of all sizes, and certain local news media businesses.
Will you be able to apply for another PPP loan?
The Senate proposed Prioritized Paycheck Protection Program (P4) Act that would, if passed, extend PPP loans to small businesses that employ under 100 workers and operate as a sole proprietorship, independent contractor, or as self-employed. The deadline to apply would be December 31, 2020, and allows for recipients to apply for loan forgiveness as soon as 8 weeks from the loan’s disbursal.
Additionally, under the P4 Act, a small business will have to demonstrate the following to receive a supplemental loan:
- A loss of revenue of 50% or more and either,
- Total depletion of the first PPP loan or
- Imminent depletion of the first disbursement.
If you have considered reapplying for a PPP loan, you are not alone. The NFIB heard from 44% of small businesses that they intend to apply or reapply for a PPP loan as soon as they can.
indinero’s Coronavirus Business Resources Hub has updates and advice on how to be in great shape for economic recovery.
5 things to do to be ship-shape and sail into recovery
Here are five things to do while we all wait for lawmakers in Washington to vote on a stimulus package that will undoubtedly shape how well we all recover from this global pandemic.
- Get sound advice on what your business’s funding options are based on your current financials and your best and worst future scenarios.
- Make sure your financial reports reflect your readiness for an SBA loan or a state or local business grant.
- Apply for loan forgiveness, if you have not already done so.
- Regularly review cash flow, liquidity, and sales projections.
- Hire outsourced accounting and bookkeeping help if your team is distracted by the constant news out of Washington on government stimulus, a vaccine, and international trade.
What is the shape of your business’s recovery? indinero provides our clients with the talent and the tech stack to gain insight and real-time reports on their business’s recovery from the pandemic. Let us help you, too.
Quick Note: This article is provided for informational purposes only, and is not legal, financial, accounting, or tax advice. You should consult appropriate professionals for advice on your specific situation. indinero assumes no liability for actions taken in reliance upon the information contained herein.