PPP Loan Relief: Can Small Businesses Still Benefit?

By Adriaan Brits Tuesday, August 4, 2020

The new law extending the deadline for Paycheck Protection Program (PPP) loans to August 8 promises more relief for small business owners after a turbulent few months. The injected liquidity has so far helped the economy and kept millions of workers on the payroll of smaller enterprises.

The Small Business Administration (SBA) typically issues about 1,000 loans in any year. In three months alone this year, they have offered small businesses relief with a record 4.9 million PPP loans, the net worth totaling over $520 billion.

According to recently released SBA data, the average loan size is $107,000, and 86.5% of loans were for less than $150,000. Furthermore, their data show that small businesses employ 59.9 million people across the US and that the PPP loans supported 84% of small business employees. PPC loans were also made across an economically diverse area and were approximately proportionate to the country’s diversity.

Recipient Percentages by Industry

By the end of June, the healthcare industry and social assistance sector were the top recipients of these loans receiving 12.9% of the money. Professional and technical service industries followed close behind with 12.7%, with construction at 12.4%. Manufacturing industries got 10%, and hotels and restaurants received 8%.

Even though job retention was impossible over the last few months for some industries, the loan money has helped them stay afloat for now and will likely support new hires as businesses get back to normal.

Why Was the Extension Necessary?

There is still about $130 billion left in the program, leading the federal government to act quickly and extend the dates. Borrower applications slowed down because of uncertainty concerning audits, lack of data transparency, and the protection of sensitive information.

However, these issues were fixed. Businesses that employ ten or fewer employees, independent contractors, and sole proprietors will not be audited, even if the data on their applications were inaccurate.

Concerns About Accountability and Loan Forgiveness

Some larger companies that initially took part in the loan program decided to return about $30 billion because of negative press coverage. Even though the money was legitimately received, they feared penalties and audits.

Some business groups also requested that smaller businesses that received loans of less than $2 million should be offered partial loan forgiveness or complete loan forgiveness. The decision was accepted, and the debt forgiveness will run following current regulations. Partial debt forgiveness will be 60% on payroll and 40% for other expenses, including rent, utilities, and mortgage payments.

How to Apply for PPP Loan Forgiveness

According to the rules of these SBE loans, borrowers can apply for loan forgiveness anytime between eight and 24 weeks after receiving the loan, but it must be done before the loan’s maturity date. Lenders will review the applications and submit the documentation to the SBA for review within 90 days. The SBA may approve partial or whole loan forgiveness, or they may ask for further details.

Any loans that are not approved for forgiveness can be paid back by borrowers over five years — an increase from the original two-year term — at an interest rate of 1%. This repayment term increase offers smaller businesses added relief.

Concerns Over PPC Loan Audits

PPC loans of over $2 million have a “credit elsewhere” issue to overcome. Unlike traditional SBA loans, business owners were not required to document a lack of credit elsewhere and only had to certify any lack of access to credit. Most companies audited will likely be able to reasonably claim a lack of adequate credit elsewhere, even if they had availability to traditional lines of credit.

The only businesses that won’t qualify are those that received venture capital or had access to stock exchange listing.

Tax Deductions May Be Lost

The adverse tax consequences of PPP loans are an ongoing issue. This is because expenses and federal payroll taxes paid by employers with these loans are not tax-deductible, meaning that even those whose loans are forgiven will not qualify for tax deductions. Active lobbying by business groups for relief on the payroll tax issue raises hopes that these will be addressed in the next phase of the legislation.

Negotiations are currently underway, raising hope that the new law will include funds targeted at certain demographics or even allow some still-struggling businesses to qualify for a second loan.

Final Take

Small businesses now have another opportunity to get PPP loans with this extension. Further negotiations PPP-related issues are ongoing and could be concluded before the Congress recesses in August.

About the Author

Headshot for author Adriaan Brits
As an analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in Advanced Analytics & Media.

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