The Small Business Administration released its latest report on the highly subscribed Paycheck Protection Program or PPP. Approvals through 4/13/2020 account for over $247 billion at an average of $239,152 per loan going to small businesses (defined as under 500 employees with exceptions for certain industries). Through Thursday morning, additional reports show that the allocated funding of $349 billion has been completely exhausted and looming doubt persists over whether or not Secretary Mnuchin will be able to deliver on additional funding from Congress.
CARES Act legislation passed over two weeks ago expanded the SBA’s 7(a) program to get much needed funds in the hands of small businesses. The PPP provides businesses with 2.5 months of payroll costs and can be forgiven if criteria are met. See our article on the PPP for more details on the program itself. The loans are made by banks directly to their customers with the SBA guaranteeing 100% of the loan. The CARES Act provides an expedited loan approval process and expanded the amount of participating lenders. Over 4,664 lenders have approvals from the SBA through April 13, 2020, which marks exactly ten days the program has been accepting applications. The program is setting an astounding daily pace of close to $25 billion per day, which eclipses what most banks will do in a year in SBA lending. The incredible amount of demand and volume has taken a toll on some banks, and the lack of timely guidance from the treasury has exasperated the process even further, as many details about the mechanics of the loan and forgiveness are still being worked out.
Loan approvals by state
The SBA report found here shows loan approval data by state and industry sector. Ohio is one of six states which received more than $10 billion in approvals already, while Kentucky and Indiana businesses have been approved for $3.3 billion and $6 billion respectively. It’s reasonable to anticipate that our three-state region’s total has topped $20 billion in funding.
Loans under $150,000 account for 70% of all loans made and represent companies whose average monthly payroll is less than $60,000. In total, businesses receiving less than $1,000,000 in loans represent 53% of the total approved dollars. The program is capped at $10,000,000 per applicant business.
Industry breakdown
Construction, professional services, and manufacturing lead all industry sectors in total approved loan dollars, each receiving over $30 billion in approvals. Hard hit sectors such as accommodation and food services, as well as retail, health care, and social assistance, followed closely behind with a total of $71.8 billion being approved for those sectors.
Loan proceeds must be used to pay for payroll, rent, utilities, and mortgage interest, however guidance from the SBA on April 1st limited the amount of forgiveness to only 25% of allowable costs other than payroll. Businesses who have been approved are shifting their attention to planning how to spend the funds and making sure they are forgiven in the eight-week period after being funded. This is an exercise which is proving to be challenging given uncertain health care and economic environments, particularly in those industries who have been shut down due to COVID 19. Questions such as when does the eight-week period begin and how many employees will need to be re-hired are common with many possible scenarios still impacting the outcome.
What should businesses do next?
Businesses should take extra care to make sure the funds are clearly spent on allowed purposes and, even if not forgiven, the loans carry favorable terms of 1% interest and six-month payment deferrals.
While the report identifies the amount of loans approved, it doesn’t give any indication on how much in actual funds has been disbursed to small businesses, and many are still left wondering when the funds will be disbursed. If the program runs out of money, as is anticipated in the coming days, the funding may catch up, as banks have more time to focus on loan closings versus fielding additional applications. One of the conditions of the program is quick funding, within 10 days of approval.
What other programs are available?
There are other programs available to businesses such as the SBA EIDL program, which has recently been capped at $15,000 per applicant, the employee retention credit, which is taken against payroll tax, and the social security tax deferral program. It is critical that businesses carefully evaluate their eligibility for and the benefits of each of these options, since the amount of assistance provided by the federal government could vary greatly depending on which path you choose.
VonLehman experts have compiled a COVID-19 Resource Center. Here, you can find numerous resources, specific to your industry, to help you navigate these difficult times. For any questions related to this article, contact Emir Hodzic at ehodzic@vlcpa.com or 800.887.0437.
