Small Business Owners Await PPP, EIDL Money from New Relief Bill

Like many small business owners, Michael Alexis, CEO of Teambuilding, which provides team-building activities to employees, has made tough decisions in the past several weeks, including laying off the majority of his 50-person team.

“Before COVID we were a $2.8 million per year business, and we lost nearly all of that revenue due to cancellations,” he says.

Alexis applied for a Paycheck Protection Program loan via his bank in early April. But the program ran out of funding before his bank had processed the application and submitted it to the Small Business Administration (SBA).

On April 23, Alexis heard from the bank that they’d sent the application to the SBA pending Congress’ approval of additional funds.

“I’m neither optimistic or pessimistic that we will receive funding, because I can’t plan around it,” he says. “Instead, I have the mindset of ‘we’ll see.’”

Countless small business-owners across the country are in “we’ll see” mode awaiting the next coronavirus relief bill, which passed the House on Thursday, and the president signed into law today.

The bill offers $484 billion in relief money, including $320 billion more for the Paycheck Protection Program or PPP, which extends forgivable SBA loans to small and medium-sized businesses so they can continue to pay employees even if they have pause operations due to COVID-19. Sixty billion of the new relief bill is for small lenders.

Chris Chan, founder and CEO of the Washington, D.C.-based 3CStrategies and a former special advisor for public engagement at the SBA, says this move could help get money into the hands of smaller businesses — if they’re already part of the SBA lending program.

“If the lending institution isn’t registered as an SBA lender already under the 7(a) program, I believe they will have to register,” he explains.

An additional $60 billion is allocated to the Economic Injury Disaster Loan (EIDL) program, with $75 billion in grants to hospitals and $25 billion to coronavirus testing.

PPP money could be gone in a week

The first round of PPP money was depleted in less than 2 weeks, and experts predict that the additional money could go just as quickly, likely to businesses who’ve already submitted applications and are awaiting an answer.

“For the PPP loan, I wouldn’t be surprised if they money is gone in a week or two at the latest,” says Chan.

“For the PPP loan, I wouldn’t be surprised if they money is gone in a week or two at the latest,” says Chan. “While the funds are substantial, so are the number of applications and we can anticipate that there is a large volume of applications at banks that are lined up to submit applications to SBA.”

The National Federation of Independent Business reported on April 9 that about 70% of the 884 small businesses it surveyed had tried to apply for a PPP loan, with varying degrees of success.

“There are 30.2 million small businesses in the U.S.,” points out Brian Cairns, CEO of ProStrategix Consulting, a business consulting firm based in New York City.

“Only 1.6 million loans have been issued to date. That is 8% of the total.”

He extrapolates that if 70% of overall small businesses filed for loans, then there are 19.5 million applications still left in the queue. “Some business aren’t going to make the cut,” he concludes.

Do mom-and-pop businesses stand a chance?

In response to public outrage, some companies that were approved for PPP loans in the first round of funding have announced they are returning the money. For instance, Shake Shack’s CEO has announced that the company is returning a $10 million loan and instead plan to raise money from investors by selling shares. It’s not yet clear how that money might be reallocated to other businesses that need it.

Universities including Harvard also received criticism for getting relief money; however, that money was from the Higher Education Emergency Relief Fund, not the PPP.  Harvard and several other schools with large endowments have announced they will not accept these federal funds.

Several California small businesses have filed suit against 4 of the country’s biggest banks alleging that the banks unfairly prioritized applications from larger customers so they could earn larger fees at the expense of smaller businesses.

Given all of this, what’s the likelihood of smaller mom-and-pop businesses getting funded this round?

That remains to be seen.

“I think the likelihood of companies getting funds has less to do with the number of employees and more to do with whether or not they are a priority for the lender or if their application was in the queue already,” Chan says. “The X-factor is going to be whether you have a relationship with your bank that makes you a priority or you found a lender that isn’t sitting on a long list of applications.”

As for Alexis, he notes that “the unequal distribution of PPP seems to have created a situation where some businesses are supported by public funding and others are not.”

Still, he says. “If we don’t secure PPP funds, we will continue to navigate the crisis the best a small, bootstrapped business can — which will include bringing our people back to work as quickly as able.”