PPP loans are back: Expanded program covers more businesses and expenses
Hoteliers and food and beverage operators will be eligible to receive a bit more this time
Business owners are getting another crack at $284 billion worth of potentially forgivable loans through the government’s revamped Paycheck Protection Program, aimed at keeping companies alive and employees on payrolls during the coronavirus pandemic.
Business owners who got a loan last year and used those funds can get a second loan. This time, the loans cover more business expenses, are open to a wider range of businesses (including destination marketing groups, newsgathering operations and 501(c)(6) organizations like chambers of commerce) and come with the assurance that approved expenses paid for by the loan will be tax-deductible — a quirk fixed last year.
And hoteliers and food and beverage operators, who have been especially hard hit by the pandemic, will be eligible to receive a bit more this time.
“It helped keep our doors open, no doubt,” said Laura Wood Habr, co-owner of Croc’s 19th Street Bistro in Virginia Beach with her husband Kal, of the loan they received last year. She’ll be seeking a second loan, but said more needs to done to support the restaurant industry.
Her first PPP loan covered payroll costs and rent. Other pandemic-relief grants paid for improvements such as an outdoor deck, personal protective equipment and disposable dining materials. She was able to keep half her staff, and wishes she could have
kept more.
Her business, in the city’s ViBe District near the Oceanfront, was hamstrung by ongoing city road work. The restaurant weathered the summer, which brought out-of-towners looking for an escape within driving distance, but by fall and winter the holiday parties and catering events she counts on for much of the restaurant’s annual revenue didn’t happen because of pandemic concerns.
“That was the last rug ripped out from under us,” she said.
“We definitely need it,” she said of a new round of funding.
Congress passed and President Donald Trump later signed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act on Dec. 27, which extended the PPP offer and added new features to the program.
Since Jan. 11, only lenders categorized as “community financial institutions” have been allowed to accept applications, because they have an additional focus on assisting under-served or disadvantaged small businesses, borrowers and communities. Newport News-based BayPort Credit Union, the region’s only Community Development Financial Institution, began accepting applications Monday. Last year it loaned nearly $30 million to more than 450 local businesses, according to a spokeswoman for the bank.
In the coming days, perhaps as soon as Jan. 19, according to Virginia bankers, any participating bank will be able to accept applications.
“If I’m the borrower, everything that’s changed is good,” said John Asbury, CEO of Richmond-based Atlantic Union Bank and chairman of the Virginia Bankers Association. “It’s difficult to make a good case for why you wouldn’t want to take advantage of it.”
The deadline to apply is March 31 or until funds are no longer available.
During the first PPP loan rollout in April 2020, panicked small businesses tried to secure loans before $349 billion quickly ran out. Some were luckier than others and often their fates were determined by the bank they used. The program was criticized early on for allowing large corporate groups and publicly-held companies to secure tens of millions of dollars in forgivable loans. While some of the money was returned, there were still cases of well-off companies benefiting.
This time, individual borrowers are still limited to $10 million if it’s their first PPP loan, but a corporate group can get no more than $20 million total.
To be eligible for a second loan, a borrower has to have fewer than 300 employees and prove that their revenue dropped by at least 25% in a single quarter of 2020 compared with the same quarter in 2019. The maximum loan amount is $2 million per borrower or $4 million for a group of related companies under a corporate umbrella.
Eligible expenses have also expanded. Before, loans had to be spent primarily on payroll, but up to 40% could be spent on rent, mortgage interest and utilities. Now, eligible expenses include business operations, personal protective equipment, making physical improvements to a space in response to the pandemic, employee health insurance coverage, and repairs to vandalism that occurred during protests and riots in 2020.
“That’s a big deal for a lot of businesses,” Asbury said.
For people receiving a first-time loan, most of the terms remain the same. The amount of loan is based on a payroll calculation: average monthly payroll (after subtracting any amounts paid to an individual above $100,000) multiplied by 2.5. Self-employed borrowers use their reported annual net profit (if it was zero, they aren’t eligible), up to a maximum of $100,000, and multiply that by 2.5 to determine the largest loan amount they can apply for. If a business is in the lodging or food services industries, they get a bit extra — the ability to multiply their average monthly payroll by 3.5 instead of 2.5.
A business or qualified self-employed entrepreneur must have been in business as of Feb. 15, 2020. Seasonal businesses that may have been temporarily closed as of that date need to prove they were open and operating for any 12-week period between Feb. 15, 2019, and Feb. 15, 2020, according to Small Business Administration rules.
Asbury said the loan is intended to be a grant. So long as certain requirements are met, the low-interest (1%) loan, which requires no personal guarantee or collateral, can be fully or partially forgiven. The goal is for the money to be spent (on employee payroll, on rent, on mortgage interest, on pandemic-related fixes and equipment, etc.) to stimulate the economy and keep businesses alive, Asbury said.
He said his institution is anticipating strong demand for the loans, “as it should be because it’s a great deal,” and expects more than 60% of the PPP borrowers at his bank to come back for a second one.
Atlantic made 11,679 PPP loans valued at $1.65 billion, and as of the middle of last year, had made the second most PPP loans in the state, nearly tying Truist Bank (the result of a merger between SunTrust and BB&T banks).
Asbury said 85% of requests were for loans of less than $150,000 and one-third of the loans the bank facilitated have been forgiven. His bank has been encouraging those who borrowed less than $150,000 and haven’t sought loan forgiveness to wait in anticipation of new rules with this latest program that appears to require only a single application page and no supporting documentation.
“This should now go a lot smoother,” Asbury said.
The first round of PPP loans last year wasn’t a savior for every business able to get one. Accent Transport Services of Chesapeake, a private medical transportation business, filed for bankruptcy protection in September with a $28,905 PPP loan listed as one of its debts. The company’s founder and president, Darwin Byrd, told The Pilot when reached by phone this week that trying to keep the business afloat amid the pandemic — even with the loan — became untenable.
“It was a trash can fire, basically,” he said. The business, which mainly ferried sick patients or residents of nursing homes to medical appointments, ground to a halt as people stopped going anywhere and telemedicine options stepped in as the preferred doctor’s office visit.
The business went from 30 to 40 trips a day, with Byrd contemplated buying two more vehicles and hiring two more drivers, to a couple of trips a day, and then none. Eventually requests from riders not in nursing homes began to pick up, but they often were, not surprisingly, sick.
“It’s hard to tell someone, come work for us and take sick people around who may or may not have COVID,” Byrd said.
It was difficult to keep the few drivers they had or hire new ones, he said. Twice, drivers had to quarantine after it was discovered that patients they had transported had tested positive.
The PPP loan was too little, too late.
“Our biggest problem was it just didn’t cover enough stuff,” he said, of the first program.
Now, the former military medic is going back to school to earn a masters degree in education with hopes of teaching college-level courses. To revive the transportation business would require new cars, new drivers, a new client list — essentially, starting from scratch, he said.