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WASHINGTON – How long does it take for a small business to get a paycheck protection program loan to keep them afloat during the COVID-19 pandemic? Are lenders required to process PPP requests on a first come, first served basis? And how are independent contractors treated?
Restaurant owners, retailers and many other small business owners continue to grapple with questions about the PPP, which was created in a massive relief package known as the CARES Act. The aim of the legislation was to support the 30 million small businesses across the country hit by social remedies for the coronavirus crisis. The Trump administration has said the program can help small businesses, the backbone of the U.S. economy, keep workers on their payroll.
The Small Business Administration program provides businesses with 500 workers or less with low-interest loans of up to $ 10 million to cover their costs when they close.
The portion of the loan that covers eight weeks of expenses need not be repaid if at least 75% of the money is spent on keeping or rehiring workers. Otherwise, it carries an interest rate of 1% and must be repaid within two years.
While the SBA has approved more than 1.6 million loans totaling almost $ 350 billion since April 3, companies report a myriad of challenges in the deployment of PPP: technical glitches, avalanche of requests, lack of response and depletion of money.
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Congress is about to add another $ 320 billion to the PPP after loan applications exceed initial funding by $ 349 billion. But the program continues to cause confusion among the many companies for which it is designed.
USA TODAY journalists Ledyard King and Paul Davidson interviewed several experts to answer some of these questions:
How long does it take to get a loan?
Some small businesses got approved within hours, while others waited weeks, said Ami Kassar, CEO of MultiFunding, a small business loan advisor. Many have still not been eliminated. Once a candidate is approved, the program requires that they receive the money within 10 days, but that doesn’t always happen, says Kassar. While some licensed small business owners got the money in two or three days, others waited up to two weeks or are still waiting.
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Why does it take so long?
About 1.6 million small businesses have sought PPP financing, an overwhelming bank and SBA online systems. The smaller community banks appear to be processing loans faster than the large national banks that have been inundated with demand, says Kassar.
If I applied for a loan in the first round and have not received a response, should I reapply for the second round?
No, you are already in the queue. You can be close to the front if you made your request soon after the program started on April 3, but it depends on whether your request is complete and accurate and how your lender can prioritize loan requests.
Could the owner of a nail salon or a small restaurant who was drawing a pay check from his business before the crisis apply for unemployment himself while looking for a PPP loan to make the business grow?
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Yes, as long as the loan is used exclusively to keep other employees on the payroll, according to Holly Wade, director of research for the National Federation of Independent Businesses. Depending on their situation, it might make more sense to include their salary in the loan application (and not take unemployment) if it helped them reach the 75% threshold so that they do not have to repay the loan. ready.
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Could a business owner who is struggling to reach the 75% payroll threshold offer increases or bonuses to workers just to be eligible?
A: Yes, said Wade, as long as no worker covered by the loan earns more than $ 100,000 on an annualized basis, as stated in the request. What they can’t do is include independent contractors in their payrolls, she said.
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When does the clock start running on these eight week loans?
The day the money is deposited into the company’s bank account, said Paul Merski with the Independent Community Bankers of America. Companies that want to delay the use of money immediately because they don’t think they can open in eight weeks don’t have that option.
Can the money be applied retroactively to pay for past wages or other costs?
No. Merski and Wade said SBA rules require that money be spent prospectively.
Could a small business making masks, hand sanitizer or other products in high demand during the crisis receive a PPP loan even if it made a profit?
Yes. The main criteria for obtaining the loan is that the business must not have employed more than 500 workers for whom it paid wages and social charges or paid independent contractors and that it operated on February 15. Loss of income is not a requirement although the application form requires companies to certify that “current economic uncertainty makes this loan request necessary to support ongoing operations”. Congress was trying to get the money out to small businesses quickly, without SBA checking every candidate’s financial situation.
The average small business has fewer than 10 employees. So why does it seem like big companies and franchises get priority in loan approvals over mom-and-pop stores?
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This is a big criticism of the program. Although the SBA must treat loans on a first come, first served basis, there is no such requirement for lenders. Some large banks have been accused in lawsuits of prioritizing larger loan applications that result in higher fees and come from larger smaller businesses that have closer relationships with the bank and are more likely to buy d other products and services. To partially solve the problem, $ 60 billion in new funding must be set aside for community lenders, small banks and credit unions to help small businesses.
A store associate distributes hand sanitizer to customers entering Trader Joe’s store in South Beach on April 14, 2020 in Miami Beach, Florida. The city of Miami Beach has put in place an emergency measure requiring all customers and employees of grocery stores, restaurants and pharmacies to wear face covers to help fight the COVID-19 pandemic. (Photo: Cliff Hawkins, Getty Images)
What about businesses located in high-rent areas, like Manhattan or San Francisco, where high rents and other expenses make it particularly difficult to meet the 75% threshold?
The program is no exception and neither is the pending bill. Restaurants were particularly vocal on the fact that PPP parameters hurt companies with high cash flows like theirs, which depend on stable incomes to maintain their payroll with each reopening.
Are Self-Employed or Independent Contractors Eligible for a PPP Loan?
Yes. The PPP allows both to apply. If they want it forgiven, Wade said that any salary they make cannot be equal to the total size of the loan and must be tied to last year’s net profits (not what they paid for themselves). But the two are disadvantaged because the window to submit their applications did not start until April 10 (a week after most small businesses), so they are even further behind for help.
What about business owners worried that they won’t be able to survive even with a PPP loan? Should they still pay off the forgivable part of the loan if they close forever or go bankrupt?
Probably not, according to Wade. “There is no personal guarantee requirement for this loan,” she said. “If they have to declare bankruptcy, the loan will probably disappear. However, if they stay in business but their sales are reduced, they are responsible for repaying the loan, says Kassar.
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