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What the new stimulus money means for small business loan programs

Small businesses need to apply quickly to capitalize on the new funds.

Workers at Bon Vivant restaurant in Los Angeles on April 15.
Frazer Harrison/Getty Images
Li Zhou is a politics reporter at Vox, where she covers Congress and elections. Previously, she was a tech policy reporter at Politico and an editorial fellow at the Atlantic.

As of last week, the Paycheck Protection Program — which offers forgivable loans for small businesses impacted by the coronavirus lockdowns to cover their payroll costs — has run out of money. This week, Congress is set to approve an additional $310 billion for the program, as well as $10 billion to cover administrative costs.

It’s a significant amount, though it, once again, will likely fall short. In the near term, what it means is that banks, fintech companies like PayPal, and other lenders will be able to accept new PPP applications and continue to process the ones they’ve put on hold. Banks anticipate that they’ll be swamped, but businesses are encouraged to apply as quickly as they can if they haven’t already.

And even if banks aren’t able to process applications just yet, experts recommend that businesses get in touch with their lenders immediately.

“Small businesses should make sure they are in the queue now with their bank for the new round of PPP funding,” says Payson Johnston, CEO of Crowdz, a fintech company that works with small businesses.

Similarly, with the approval of these new funds, the Small Business Administration will be able to take new applications for the Economic Injury Disaster Loan (EIDL) program, which enables businesses to apply for grants of up to $10,000. (For a more detailed guide about how to apply to either of these programs, check out our explainer.)

Businesses are eligible for both programs as long as they meet the size requirements and can demonstrate that they’re facing economic uncertainty because of the coronavirus. Those that have applied already should be in line for both programs and don’t need to reapply, according to the Wall Street Journal.

The Paycheck Protection Program (PPP) enables businesses to apply for a loan of up to 2.5 times their monthly payroll costs, up to $10 million. These loans are fully forgivable if businesses use 75 percent of the funds for payroll and can prove that they met certain conditions like rehiring laid off workers. The EIDL, in addition to the grants it provides, also enables businesses to take out low-interest loans of up to $2 million.

The process for applying to these programs is pretty much the same as it has been thus far, although Democrats have pushed for some additional conditions for the money, which are intended to make it more accessible to minority-owned businesses and rural businesses.

The broader concern about these funds is similar to what it was for the first wave: There’s an overwhelming worry that it won’t be enough.

There are some new conditions on this money — though loopholes remain

The new bill makes some changes aimed at increasing the accessibility of these loans, but it does not close a major loophole that’s enabled corporations to benefit from the small business programs as well.

The key update the legislation includes is one that guarantees funds to community-based lenders. As laid out in the bill, $30 billion of the $310 billion in new PPP funds will go to credit unions and lenders that have less than $10 billion in assets, while another $30 billion will go to institutions with between $10 billion and $50 billion in assets. This means that such money will be specifically set aside for smaller institutions, rather than larger ones, which scooped up much of the money in the initial round of PPP funding.

The set-aside of this funding is important because it guarantees that customers who are more likely to frequent smaller banks and community lenders will have a source where they can apply for funding. Minority business owners and rural business owners are typically less likely to have an existing relationship with a major bank, so they were initially shut out of the application process at several of the larger lenders.

“Our smallest businesses who rely on their community partners for support and service now have a greater chance at accessing the capital they need to remain open,” Gregg Bishop, New York City’s Commissioner of Small Business Services, told Entrepreneur.

The bill, however, doesn’t do anything to further restrict large corporations like Shake Shack and Potbelly from applying to the program and receiving loans in the future. Because restaurants and hotels that have fewer than 500 employees at their individual locations are eligible to apply, major publicly traded companies have been able to benefit from these loans.

“At the end of the day, we’re still concerned about small businesses getting left behind. We’re concerned about larger businesses being able to tap the funds out again,” says Awesta Sarkash, government affairs manager at Small Business Majority, an advocacy group dedicated to fighting on behalf of small businesses.

The money could run out quickly again

The biggest issue with this round of funding is similar to the problems that emerged with the first round, too. In both cases, neither included enough money.

According to a LendingTree survey of over 1,200 small business owners, 60 percent had previously applied for PPP funding, but just 5 percent received it. As the Chicago Tribune reports, there’s likely a total of 6 million small businesses that are eligible for the PPP, and only 1.6 million have received loans so far.

This latest stimulus bill infuses another $310 billion into the PPP, on top of the original $350 billion allocation. Bank of America economists estimate, however, that the program would need $650 billion in new funds in order to fulfill the entirety of the need that’s out there.

These figures suggest that the programs could well require another increase in funding in the next stimulus package. Funding for small businesses has been among the rare priorities that Republicans and Democrats have both championed in the past — though some GOP leaders have begun signaling their opposition to another expansive legislative proposal.

Banks, for now, are steeling themselves for the upcoming rush. “This is going to go within, at most, 72 hours,” Consumer Bankers Association President Richard Hunt told Politico.