By now, you must have a clear idea about the extent of devastation caused by the Coronavirus outbreak. You probably know that the small and medium businesses are the worst affected by this situation. Now, the US government has introduced a slew of financial aids and schemes for different sectors, and small businesses are one of them. Small businesses can opt for Paycheck Protection Program to prevent closing down or laying off employees.
According to the SBA (Small Business Administration), the Paycheck Protection Program is a loan aimed at providing an incentive to small businesses to keep their employees on the payroll. SBA will forgive loans if all employees of the companies are kept on the payroll for eight weeks, and the money is utilized for payroll, mortgage interest, rent, or utilities.
Even as the PPP loans are being rolled out by SBA, countless small businesses have raised concerns over being deprived of the funds that they desperately need. This further raises obvious doubts about whether the money is really reaching those who need it. Let’s explore why small business owners are unhappy with the PPP scheme.
- The loans come with conditions
“Business owners who were fortunate enough to receive the funding on time have stated that the money kept their businesses afloat. However, some owners have also highlighted that the PPP regulations aren’t allowing them to use the money in the ways they see fit.
Many small businesses have complaints regarding the conditions of the PPP scheme. Basically, 75% of the forgiven amount on the loans has to be spent on payroll. The rest can only be invested in a few categories: mortgage interest, rent or utilities. Now, with many businesses not being able to reopen, owners are confused about how to invest that much amount on the payroll when they have little to no work for their employees to do.
- Average loan size has decreased
The average PPP loan in the second round of funding was $79,000. That's significantly lower than what was provided after the first round when the average loan was around $206,000.
With this round of funding, policymakers were concerned with ensuring smaller lenders can access the loan amount. They kept $30 billion for lending institutions with lower than $10 billion in assets. Additionally, the SBA allotted a slot of eight hours last week during which the agency only let small lenders access the system.
Now, small lenders tend to provide smaller loans. SBA data indicates that the average PPP loan at banks with over $50 billion in assets is just over $90,000 this round. For banks with assets lower than $1 billion, the average is approximately $58,000.
- The second round of loan won’t meet the high demands
Since the second round of PPP loan started rolling out, businesses have been quickly snapping them up. The SBA has declared nearly $176 billion in loan approvals in five days so far, which was faster than the first round's $349 billion in 13 days.
Now, there's a valid reason to think that many of the small businesses could require funds after this round runs out. After the first round, a survey from the National Federation of Independent Business discovered that three-quarters of small companies had applied for the first-round of PPP loans. Yet, only 20% had received the money.
- Banks made $10 billion that too just in fees
A huge beneficiary of the small business loan programs is a bank. Even as thousands of small businesses were deprived of the program, it was reported that banks made more than $10 billion in fees.
Since these SBA-guaranteed loans come with little risk, banks were happy to roll out larger loan amounts, which brought in higher fees.
- Confusion over repayment or forgiveness of the loan
Further complicating the process of applying for this loan is the fact that some businesses and financial professionals don't know if the loans will be forgiven or have to be paid back. They’ve been waiting for further details from SBA to gain clarity on the loan forgiveness.
“It's vital for businesses to learn about loan forgiveness soon. Forgiveness calculations will depend on how companies invest their money within eight weeks of receiving the loan”, suggests Robert Ferguson, an assignment help expert for Allessaywriter.com. The program was initiated on April 3rd, so there are only a few weeks until the first businesses who got the loans will have to report their spending to SBA.
- Most of the loans went to thriving businesses, instead of the struggling ones
Many large companies were benefitted from these PPP loans. This indicates that companies didn't really have to be struggling to receive a loan.
The issue is that the program wasn't initiated to help businesses grow. It was supposed to rescue small companies, nonprofits and self-employed people struggling to continue payroll or pay for utilities and benefits.
- There’s still a lot to be learned
There's still a lot of uncertainly related to the PPP loans.
For instance, before the second round of funding, several lawmakers, in particular, voiced concerns that women-led businesses and businesses owned by people of color are yet to access PPP loans. SBA hasn’t presented any data specifying the owners' gender or race, so it’s not clear to what extent these businesses have been affected, and whether it’s improving or not.
Besides, SBA released some elaborate data in the first round of the loans which hasn't released yet. For instance, it is unclear as to which industries are receiving that second pot of money. In the first round, restaurants and hotels — which were among the worst affected by layoffs — received only about 9% of the allotted money.
Wrapping it up
While PPP loans were introduced to help small businesses sail through the Coronavirus crisis, it has given rise to more uncertainties. There's growing discord among the small business owners about the difficulties they're facing to apply for the loan which needs immediate government intervention.
Latest posts by Nionica Starc (see all)
- Reasons Why PPP Isn’t The Support That Small Businesses Need - May 24, 2020
