Expertise Beyond the Numbers

What’s Next for Businesses Unsuccessful in the First Round of the Paycheck Protection Program?

Updated 5/7/2020 at 3:55pm ET

As of April 16, 2020, the Small Business Administration announced that all of the $349 billion approved by Congress for PPP Loans has been allocated, with some of this already being funded to businesses. Congress will need to provide more funding for PPP Loans in order for new applicants to be able to get a PPP Loan. The SBA is still accepting loan requests in anticipation of Congress adding more funds for PPP loans, but there is nothing definitive or official as of now.

SC&H’s Key Takeaways

  • If you weren’t successful with securing a loan in the initial wave of the Paycheck Protection Program, you still have options: EIDL, Payroll Tax Credits or Tax Deferrals, and a Traditional SBA Loan.
  • Congressional leaders are already in talks on reloading the PPP small business loan program.
  • If you were on the fence and haven’t applied yet – apply now and secure your place in the queue. Even if it’s too late for round one, it appears that round two is imminent.
  • After details weren’t entirely clear in the first wave of applications, we’re getting more clarity around PPP application items, including gross payroll calculations, the payroll measurement period, the loan forgiveness testing period and independent contractor spend.

Since Congress passed the $2 trillion stimulus bill – the Coronavirus Aid, Relief, and Economic Security (CARES) Act – with $349 billion allocated to helping small businesses, it’s brought its fair share of highs and lows for small businesses nationwide. And now that all of the funding allocated by Congress for PPP Loans has been used up, businesses are wondering ‘what’s next’?

But even while the angst is growing in the small business community, congressional leaders are already engaged in heated discussions around a “PPP Round 2” of sorts. And while initial attempts to pass something have been halted – this should be a sign to small businesses to keep applying, even though many have been declined or, in some situations, not even able to complete an application.

For businesses that have applied (if you haven’t yet – that absolutely needs to be Step 1 to get into the queue now) but were not able to secure a PPP Loan – there is good news, you still have options.

Economic Injury Disaster Loan (EIDL)

This is the first place you should set your sights on. This update to the Small Business Administration’s Economic Injury Disaster Loan Program is intended to provide an immediate lifeline, offering advance grants of up to $10,000 that could arrive within three days of businesses making a request. The advance does not need to be repaid, even if the business is ultimately turned down for an EIDL loan.

Beyond the (up to) $10,000 advance, these loans provide low interest working capital loans of up to $2 million to almost all U.S. small businesses (must have fewer than 500 employees) and private non-profit organizations to pay fixed debts, payroll, accounts payable, and other expenses. These loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits — the loan repayment terms vary by applicant, up to a maximum of 30 years.

Payroll Tax Deferral & Employee Retention Credit

The CARES Act expanded opportunities for payroll credits that businesses may be eligible to receive – it incentivizes employers to retain and pay employees. For some employers, this can still be meaningful dollars that they can save immediately by reducing payroll tax deposits and providing them with additional liquidity.

All employers are eligible for the deferral other than those who have loans forgiven under the CARES Act for certain loans provided by the Small Business Administration. Employers who have debt forgiven under the Payroll Protection Program are not eligible for payroll tax deferral on a prospective basis. Prior deferrals may remain in place and be paid according to the relief provisions noted below without interest or penalty.

  • Payroll Tax Deferral: This allows employers to defer the payment of payroll taxes incurred between March 27, 2020 and December 31, 2020. The deferral applies to the employer portion of social security taxes (6.2% of employer wages up to $137,700) and the employer’s and employee’s share of Tier 1 Railroad Retirement Tax Act tax up to the 6.2% of wages that corresponds with the social security tax. Self-employed individuals may also defer 6.2% of self-employment taxes incurred during this period. The deferred taxes are due and considered timely paid if 50% of the amount deferred is paid by December 31, 2021 and the remaining 50% deferred amount is paid by December 31, 2022. For More Details, Click Here.
  • Employee Retention Credit: Eligible employers are allowed a credit against payroll taxes for 50% of the qualified wages of an eligible employee for wages paid from March 13, 2020 to December 31, 2020. The credit is refundable if it exceeds the employer’s social security or Railroad Retirement Tax due in a quarter. For More Details, Click Here.

And finally, businesses should consider a traditional SBA loan if EIDL doesn’t work for you due to size limits or other qualifications.

Download: SC&H’s Business Loan Programs Comparison Chart

PPP for Self-Employed Individuals

The 2nd wave of applications – earmarked for independent contractors and sole proprietors – started on April 10.

In order to qualify, you needed to have begun operations prior to February 15, 2020. Proceeds from the PPP loan can be used to cover your mortgage, rent, office lease, utilities, payroll costs, and your net self-employment earnings. For those that have a home office, you can claim a portion of the mortgage, rent and utilities based on the percentage of your home used as a home office. If the loan proceeds are used for those expenses in the 8 weeks following receipt of the funds, the loan will be forgiven.

And finally, it appears that small businesses will see further relief in the form of a reload of the initial small business program, which saw $349 billion allocated to it in the $2 trillion stimulus bill.

Paycheck Protection Program – Round 2?

With the initial Paycheck Protection Program (PPP) coming under so much scrutiny for its application process and many questioning if it’s enough, congressional leaders are already in talks to secure additional funding for the program. As of today, there are talks that the Senate is nearing a deal that could inject roughly $370 billion into loan programs for small businesses, including the PPP.

The economy has been hammered by the coronavirus outbreak, and signs are encouraging that a replenishment of the program is imminent.

And for those who didn’t apply – do it immediately! For those who were shut out by technology or their bank – apply now in the hopes that funding will arrive – they are many applications already approved by the SBA waiting for funding, the thinking here is that this second round of funding will go even faster than the first round.

Main Street Business Lending Program (MSBLP)

The Federal Reserve on Thursday, April 9, unveiled emergency programs that could dole out more than $2 trillion in loans to businesses of all sizes, as well as to struggling city and state governments.

Within this announcement, they announced a new measure called the Main Street Business Lending Program (MSBLP) – a federal reserve credit program to encourage expanded lending activity to small- and medium-sized businesses. This could be another alternative to businesses missing out on the PPP Loan.

The Fed has not announced much beyond the name of the program and its target of small- and medium-sized businesses. We will release more substantive details about the program as the picture becomes clearer.

Read the Full Blog, “The Main Street Business Lending Program: Breaking Down the Key Details.”

As this situation plays out, we will continue to monitor the situation and Government responses and provide updates as things change. In the meantime, feel free to contact us with any further questions surrounding the SBA Loan Application Process. We are here to help.