The U.S. Congress passed a $484 billion stimulus bill on Thursday, aimed largely to support small businesses.
The majority of funds — $322 billion — will replenish the federal Paycheck Protection Program, which was quickly depleted last week. The stimulus package also includes $60 billion for the Economic Injury Disaster Loan program.
PPP loans are meant to offer quick financial assistance to as many small businesses as possible and — should businesses meet certain requirements — are completely forgivable.
The U.S. Small Business Association first based its eligibility criteria on workforce and payroll size, leaving out sole proprietors and independent contractors until a week after the program was open for applications.
“The reason it was a two-step rollout was because SBA really had to figure out ‘How do you lend to these categories that don't have payroll?’,” Virginia Bankers Association President Bruce Whitehurst said. “There was such a huge pipeline of loan applicants who were eligible April 3, which made it more challenging for the April 10 borrowers to gain funding.
The SBA reports that in Virginia, only about 40,371 loan applications totaling $8.7 billion were approved before the first round of federal funds ran out. Whitehurst said a survey of more than 65% of VBA’s member banksshowed more than 22,726 small business applications totaling $3.2 billion didn’t get the PPP loans.
One big issue the first time around was that larger businesses’ applications were seemingly favored over genuinely small businesses. Whitehurst said that likely had to do with their existing relationships with banks.
“There are regulatory requirements designed to make sure that there is legitimacy to who the borrower is, and so, to the extent that a bank already has most or all of that information from a customer, they are able to process a loan application much more quickly and efficiently,” Whitehurst said. “Another reason is that, if you have current customers, then it just makes good common sense that you should give them preference.”
In the new federal funds, $60 of the $322 billion PPP replenishment will go to small lenders and community-based banks, in an effort to level the playing field for small businesses with little or no prior relationships with big banks.
The SBA also issued new guidance on Thursday after criticism over publicly-traded companies, including Ruth’s Chris Steak House and Potbelly, qualifying for the loans. Now, applicants will have to demonstrate that their businesses’ economic vitality depends on the loans.
Larger businesses can get PPP loans based on a loophole in the program criteria. It outlines any business “that has more than one physical location and employs less than 500 per location” could qualify.
Are you part of a Virginia small business that applied for the Paycheck Protect Program? We’d like to hear about your experience — email us at [email protected].
