Despite a rocky start, the federal small business loan program meant to save Main Street during the pandemic still has funds to dole out to business owners across the country.
When the US allocated the first round of $350 billion, chaos ensued. Last minute changes from the Treasury left banks confused and created a haphazard system that denied many founders relief while allowing publicly traded companies to access funds through a loophole in the application. The funds were exhausted in 12 days.
Now, it seems the federal Small Business Administration, the Treasury, and banks have learned from their mistakes. The second round of nearly $320 billion in additional aid launched on April 20 and there's still money left.
After $12 billion were approved during the first full week of May, about 40% of the initial amount remains to be claimed. If that rate remains the same, PPP funds could last another 10 weeks.
Here are three lessons the SBA may have learned that's keeping them from running out of funds as quickly (and problematically):
1. The largest firms already got their loans, allowing smaller businesses to get through in the second round.
During the initial rollout of the PPP loans, banks favored working with businesses they had a prior relationships with — typically large firms that can afford personal, on-demand service to troubleshoot issues.
Smaller businesses, however, got stuck with dealing with the confusing, archaic loan system with little help from banks, Business Insider previously reported.
Big companies ended up getting access to more of the first $349 billion funding faster than mom-and-pops, which is partly why the money dried up so quickly.
With large companies facing more scrutiny this time around, the second investment could be lasting longer due to smaller average loan sizes being granted to smaller companies.
While it can be hard to get the VIP treatment from Wall Street banks, community lenders around the country have been extremely effective at securing PPP loans, so it may be worth reaching out to a smaller bank in your area.
2. The SBA limited how many applications can be pushed through at a time, giving smaller banks a fighting chance.
The SBA's loan processing tool, called E-Tran, was not designed to handle the massive influx of applications that came in for PPP, which resulted in initial crashes and delays.
E-Tran normally processes $20 billion in loans from fewer than 1,800 lenders each year. By contrast, the outdated technology has had to dole out more than $540 billion in loans from over 5,400 lenders in just a few weeks.
To process the tidal wave of demand, banks used algorithms to automate loan requests, flooding the SBA's system with thousands of applications. The deluge caused E-Tran to time out and then crash entirely.
On April 29, the SBA told banks it would no longer accept loan applications submitted using these automated processes in hope of reducing site crashes.
This lower-tech approach to lending confers another advantage to working with a smaller, local lender, who may have fewer applications in their E-Tran queue.
3. Many business owners are still reluctant to take on new debt without clarity on how to pay it back, which means fewer applications overall.
The rate at which small businesses have requested loans has slowed compared to the initial PPP investment, according to Business Insider Intelligence.
The PPP provides up to $10 million to help firms pay employee salaries, taxes, rent, and more, and the law states banks can forgive the debt as long as companies use the money to pay workers within eight weeks.
But some small business founders remain uncertain about how to qualify for forgiveness, and the SBA and Treasury Department have yet to release formal guidance on forgiveness aside from a Frequently Asked Questions document.
The lack of clarity around PPP may account for the lag in requests as mom and pops weigh their options instead of jumping on a potentially risky loan.
Even if you are uncertain about spending the money, it may be worth applying for the loan. Experts recommend putting the funds in a separate account, which you can leave untouched and return in full if the terms of the program don't make sense for your business.
