New spherical of PPP lending opens

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A new round of Paycheck Protection Program (PPP) lending by the U.S. Small Business Administration opened Jan. 11, allowing second loans for the first time. | CREATIVE COMMONS

A new round of lending under the U.S. Small Business Administration’s Paycheck Protection Program (PPP) began Jan. 11, starting with a targeted opening to lenders that serve underserved communities.

The PPP was the federal program most acutely tailored to the economic recovery of businesses impacted by the effects of the COVID-19 pandemic, offering low-interest loans that could be entirely forgiven under certain terms. Originally instituted under the CARES Act passed by federal lawmakers in March 2020, it doled out $525 billion of the $659 billion appropriated by Congress before the program expired in August. Delaware businesses received more than 13,000 of those loans worth more than $1.5 billion.

Under the second stimulus package approved by Congress and President Donald Trump in December, the PPP was restarted with $284 billion to allocate through March 2021, including at least $15 billion targeted at those underserved communities.

John Fleming. | PHOTO COURTESY OF SBA

When the loan portal reopened on Jan. 11, it initially accepted first-time PPP loan applications from participating community financial institutions (CFIs), which included community development financial institutions, minority depository institutions, certified development companies and microloan intermediaries. The only participating CFI in Delaware was Wilmington-based True Access Capital, according to John Fleming, the SBA’s state director.

Starting Wednesday, Jan. 13, participating CFIs may begin submitting applications for second-time borrowers. Those loans will be capped at $2 million rather than the prior $10 million, and only be eligible to businesses with 300 or fewer employees, versus 500 in the first rounds.

What the appetite may be for a new PPP loan remains to be seen as borrowers will need to prove at least a 25% reduction in gross receipts in a 2020 comparable quarter, but federal legislators also loosened the program’s terms and expanded eligibility to 501(c)(6) nonprofits, housing cooperatives, destination marketing organizations, and others.

PPP borrowers can also now set their loan’s cover period anywhere from eight to 24 weeks to cover additional costs, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures.

“That was key because now any kind of modifications that they had to do for COVID, such as buying protective equipment or making modifications outside – like a restaurant buying those heaters and tents – all that is now going to be eligible as well,” Fleming said, noting 60% still must go toward payroll for a loan to be forgivable.

Hotel and restaurant operators are also now allowed to apply for up to 350% of monthly payroll versus the 250% allowed in the earlier round, to address the disproportionate impact they have shouldered this past year, Fleming said.

Virtually all of Delaware’s largest lenders, including WSFS Bank, M&T Bank, PNC Bank, TB Bank, Chase Bank, Bank of America, Citizens Bank, Fulton Bank, and more, are participating in the PPP again, however, many are prioritizing their own customers. Fleming noted that online lenders such as Kabbage, PayPal, Square and more are an option for those without a bank relationship.

The forgiveness process for first-round PPP loans is underway, and Fleming noted that Congress has made the process simpler for the smallest borrowers. A single certification sheet is now all that is required for those borrowing $150,000 or less – essentially becoming an honor system for 87% of the program’s borrowers nationwide.

In addition to the restart of the PPP, the SBA also extended debt relief on its core 7(a), 502 and micro small business loans, paying the principal, interest, and fees for impacted businesses. Congress appropriated $3.5 billion toward that cost, with borrowers seeing a $9,000 monthly cap, while also extending the SBA-backed guarantee on those loans to 90% from 75% and waived fees. That will further convince lenders to participate in the programs, Fleming said.

“That’s the type of thing we did after the 2008 crisis, and we were able to bring SBA lending back to up to record levels,” he said.

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