Small business funding is largely underutilized due to stringent rules and endless changes. 

The U.S. Small Business Administration will be closing their doors of approval for all Paycheck Protection Program loan applications on Tuesday June 30th. What this means is that more than $100 billion in “federal loan guarantees” for nonprofits and small businesses grappling with COVID-19 will remain untouched. 

According to the SBA, the Paycheck Protection Program, launched on April 3, has awarded close to $519 billion in loans from private lenders and banks to almost 4.8 million borrowers. Based on these figures, that leaves an excess of $134 billion in guarantees, still remaining. 

Many business owners hope that Congress will consider extending the PPP deadline and also to allow borrowers to take out an additional loan. However, before any renewal of the PPP can be considered, they need to assess the effectiveness of the loan program. 

According to John Arensmeyer, founder of the lobbying group Small Business Majority in Washington and a California entrepreneur:

“Many of the smallest, most vulnerable businesses were shut out of the first round of funding and have since struggled to find lenders or determine if the program is workable for their business. It is up to Congress to ensure…critical relief funds do not lapse because of the closing application window.”

The PPP: Undermined By Excessive Changes

Arensmeyer also observed that, although the SBA and the Department of Treasury worked quickly to launch the PPP, the program was “undermined by ever-changing regulations”. This directly contributed to a drop in participation by both small businesses and banks. The Government Accountability Office reported that the SBA released a total of 18 sets of rule changes as well as 17 updates to their FAQ (Frequently Asked Questions) for lenders and borrowers. This all happened in just the first 10 weeks. 

The Government Accountability Office also cited that the SBA gave lenders permission to use their borrower certifications for determining borrower eligibility, which could increase the potential for fraud. 

Of the PPP recipients, the industries that were awarded the most loans were in healthcare/social assistance, professional/technical/scientific services and in construction. 

Some Businesses Were Not Too Keen On These Regulations

In order to have their loans forgiven, it appears that businesses were required to jump through complicated loops. 

One of the stipulations for loan forgiveness is that they must spend 75% of the loan exclusively on payroll and the remaining 25% must be spent on operational expenses such as rent and utilities. In addition they had to use up the loan within eight weeks of being awarded. All these stringent rules turned some businesses away, unwilling to apply.

According to Karen Kerrigan, president and CEO of advocacy group The SBE Council, all these restrictions placed on the PPP loan program has “dampened demand.” What’s worse is that many of these businesses risk coming away with “minimal forgiveness”. Add to that the general insecurity of the current economic situation and the uncertainty of when business doors will reopen, business owners were rightfully worried about taking out another loan. 

Difficult Times Ahead

With many cities locking down again and social distancing in full force, most businesses are already contending with how to operate in such limiting, difficult circumstances. One thing is for sure, small businesses need all the financial resources they can get, but it won’t happen if regulations do not change.

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