The Paycheck Protection Program (PPP) was essentially set up in 2020 to create a multi billion dollar forgivable USA business loan package intended for small businesses to cover rents, payroll costs, utilities or interest arising out of the Covid-19 crisis.The PPP loans were in a way an extension of the US Small Business Administration (SBA) loans.

The Paycheck Protection Program was intended to be a rescue act for many small businesses slammed shut by the coronavirus pandemic. The CARES act gave forgivable loans to businesses to mainly clear the payroll costs. In January, this year, a second round of PPP was launched to allow some businesses to avail of second-draw loans.

The innovative PPP allowed qualified businesses to avail of unsecured loans of 2.5 times their average monthly payroll capped to  $10 million at an interest rate of 1%, and maturity time between two to five years, providing 60% of the money was used to cover payroll costs and the balance 40% to eligible non-payroll workers. Only the lender had the option to extend the maturity period of the PPP loan longer.

If the loan was utilized within a specific period, at least in part towards payment of payroll bills, then the principal and accrued interest could be forgiven. It therefore came as no surprise that due to vague loan rules and prospects of easy money the first rollout got snapped up in just two weeks.

The Fallout

Amid the economic fallout of the pandemic, small businesses with 500 or less employees become eligible for emergency loans and grants. However, there was a loophole in the SBA program which allowed money to be distributed to hotels, restaurants and even large companies with thousands of employees, that otherwise would have not fallen in the small business criteria.

As a result, this key response by the federal government to combat the coronavirus has fallen flat as the government has hardly any funds left to lend out even though President Biden extended the PPP deadline to May 31,2021 from March 30,2021. In early April 2021 barely $8 billion dollars remained in the kitty, out of the $800 billion already given in forgivable loans since its launch more than a year ago. This even after a recent infusion of Paycheck loans worth $284 billion in early January this year.

Moreover, the remaining $8 billion from the relief package are earmarked only for loans for businesses run by minority communities and businesses run by women. This will surely shut the door for loans for other small businesses as SBA has stopped taking any new applications.

Sadly, even after more than a year and serving over 8 million small businesses, the funds from the PPP program are exhausted, said a spokesman of the SBA. While broadly it served the purpose of saving jobs, no one is still sure how many jobs the PPP saved. The US Treasury Department has put the number at 19 million, while studies suggest it might be much lower.

Surprisingly, just weeks after the deadline for PPP was extended to the end of May to give more time to small businesses to apply for loans, the funds started running out. While this was more or less expected by many borrowers and lenders, no one could predict that it would happen so soon. As a result there are thousands of borrowers who have been left high and dry.

The program was also marked by frustrations, especially during the second round, when an increase in frauds were discovered through screening. This led to longer process times, more error codes and the further numerous changes in the loan application calculation left small business owners and lenders running helter skelter to keep up.

Small businesses hurt the most

The US PPP program was launched specially to bail out small businesses by providing them a crucial lifeline to survive somehow till the country reopened for business after the pandemic. A report by Gusto indicates that while PPP helped to stabilize the free fall in March 2020, the small businesses were nowhere near the pre-covid employment levels.

Now even though restrictions are being gradually lifted and vaccination on in full swing, small businesses are still finding it hard to survive. This despite other relief measures available through the SBA, some of which also provide grants to small businesses. Panicky owners of small businesses are in a frenzy to grab whatever is available from the scant number of lenders still supporting the government backed loans.

Other options

The US Small Business Administration has since announced that there are no more funds left in the two programs which were launched through the CARES Act namely, the Paycheck Protection Program and the Economic Injury Disaster Loan program (EIDL).

A Restaurant Revitalization Fund, with a stimulus package of $1.9 trillion was established in March 2021. However, in the first three weeks SBA only accepted loan applications from women who owned small businesses, veterans and those people at an economical disadvantage, a priority accorded by the Biden administration.

While waiting for more information as to whether more funds will be added to these two programs, there are other opportunities for those small businesses seeking relief like the Federal Reserve’s Main Street Lending Program. Apart from this, help from several state government programs and community groups is also in the offing to support businesses in their respective areas.

Some other types of assistance available for small businesses to help during the pandemic are:

  • Main Street Lending Program- for small and medium businesses, upto 10,000 employees, that were in good shape before the pandemic.
  • The Employee Retention Tax Act- upto $5000 per employee who are not getting relief from the PPP act.
  • SCORE- offers free personalized service to small businesses to address the current crisis including help with the funding application process.
  • Grant Programs & Free Services- Donations from corporations and non-profit and help in arranging grants by way of free service. A few in the industry are Verizon, Yelp, Facebook and Google.
  • Express Bridge Loan Pilot Program- quick bridge loan assistance of up to $25,000 for those with an existing relationship with SBA.

These loans can prove to be crucial for small businesses to overcome the revenue loss they have experienced. They can also be used as a term loan, or utilized to bridge the gap when applying for the SBA Economic Injury Disaster loan, says a spokesman of the SBA.

Congress twice extended the program in December 2020 and March 2021 but there are no indications that there is further relief on the way. These are, therefore, worrying signs that the remaining small businesses will not get the support they so desperately need.

The Paycheck Protection Program, since its inception, has had a rocky path to travel. Technology issues and confusing rules added to the chaos. Big banks literally shunned the distressed communities and instead gave priority to bigger and wealthier businesses. The Biden administration has estimated that over 400,000  businesses have closed permanently as a result of the pandemic. It seems that the SBA shutdown, indeed, threw everyone off guard.