New round of small biz loans kicks in
Processing begins Wednesday on a second round of Paycheck Protection Program loans for small businesses and nonprofits that have already used up their first loans, according to federal officials.
Community financial institutions — which represent approximately 10% of eligible lenders — were able to begin accepting loan applications on Monday for entities seeking their first PPP loans.
“It’s critically important, every bit as important as the first round of money, which was a life preserver for small businesses through the summer,” said Jon Hurst, president of the Retailers Association of Massachusetts. “But even as some restrictions were relaxed in the fall, that didn’t mean that customers came through the door. The rent continued, and payments to suppliers continued.”
The feds are making the loans exclusively available to smaller, community lenders for several days as the program starts up again. Additional identity checks are intended to correct some of the confusion and fraud associated with the first round in the spring. That program ran out of money within days as businesses rushed to claim funds with few eligibility restrictions. Most very small businesses without close ties to a lender were shut out of the process and unable to get funding.
Officials say they do not anticipate that the system will be inundated with requests this time and that the $284 billion that Congress approved for this round won’t run out.
The new round includes $60 billion for businesses that haven’t been able to access the process so far, and it focuses on companies with 10 or fewer employees or those in low-income areas. The initiative also has $30 billion to help increase capacity among lenders active in under-served areas, including community development financial institutions, minority depository intuitions and other small lenders.
Firms that are eligible for a second loan will be capped at 300 employees, instead of 500, and the maximum loan amount this time is $2 million, down from $10 million.
“I’m not at all sure we won’t need a third round of funding,” Hurst said, adding the need would depend “on when restrictions are lifted and there’s messaging to consumers that it’s safe to come back.”
The influx of cash comes at a critical point, with more than 60% of businesses believing that the worst of the pandemic-related economic crisis is yet to come, according to a recent survey of 600 small business owners by the U.S. Chamber of Commerce and insurer MetLife Inc. About half of the survey respondents said they will have to shut down within a year unless the economy improves.