What to Do If You Missed Out on a PPP Loan

By Mark Henricks

When the Paycheck Protection Program (PPP) loan fund set up by the CARES Act ran through its initial $349 billion in funding on April 16, countless small business owners who had applied unsuccessfully for the forgivable loans were left wondering what to do next. The good news is that congress has agreed to allocate $320 billion more to the program. So if you missed out the first time around, what should you be doing differently with your next application. And what are the other loan and grant options that you should explore? 

If you weren’t able to get a loan before the first round of funding ran out, there may be a few reasons.

Lender policies and practices. Some major banks initially said they’d only loan to businesses with existing loans. Others restricted applications to clients with business checking accounts. Many lenders ultimately reversed themselves on these positions, without making it clear exactly which applications would receive preference, if any.

It also seems apparent that banks favored larger loan requests by businesses with sizable numbers of employees before approving loans to sole proprietors, independent contractors and other small businesses. The more than 1.6 million loans funded averaged approximately $250,000.

Opaque bank criteria is a common criticism of the PPP program. While SBA guidelines for eligibility were relatively straightforward, the criteria applied by the lenders who would actually be making the loans was much less so.

Some banks did not promptly process applications. Recall that the CARES Act was passed March 27 and the PPP loans had a launch date April 3 – only a week later. And on top of that, the SBA did not issue its final interim rule on PPP until April 2 – just hours before financial institutions could begin accepting loan applications. That simply wasn’t enough time for many banks to absorb and apply details in that final interim rule. As a result, even though many small businesses applied timely to such institutions, a number of those institutions did not move quickly enough to beat the stampede: all $349 billion was spoken for in less than two weeks.

Business structure. Some applications, especially those of sole proprietorships and independent contractors, were rejected because they could not properly document payroll expenses. However, many sole proprietorships and independent contractors compensate their team members by contract rather than putting them on salary.

Some sole proprietor applications were rejected for lack of a 2019 Schedule C for proof of net income or not having a lengthy enough payroll history because they started in late 2019 or early 2020.

Rejections also hit franchises. The SBA advised franchises that to participate in PPP they had to be listed on the SBA franchise directory. But many are not listed and say that getting listed takes weeks.

Clearly, some industries appear to have been favored. At the top of the list were construction companies, which got about 14% of all loans. Professional, scientific and technical services businesses got about 12% of all loans, as did manufacturing businesses. Meantime, utilities, management services businesses and public administration all got less than 1% of the loans.

Other reasons for rejection include not being in operation before Feb. 15, 2020, and businesses having a 20 percent owner with a prior felony conviction or guilty plea.

Unsuccessful applicants had few options for finding out why their applications were not approved. Some major banks told applicants that customer service departments and branches couldn’t answer questions about applications. Loans would either be approved or not, without provision for follow-up.

Now that the program has received more funding, it’s time to find a bank willing and able to accept your loan application. A good place to start is this list of PPP lenders and their requirements. Note that the new appropriation designates some money specifically to smaller banking institutions, so finding a small bank – which sometimes have less strict lending requirements – may be a good strategy.

Fortunately, there are alternatives to PPP. The SBA has several loan programs that could help small businesses, including:

Economic Injury Disaster Loans (EIDL). An EIDL is a loan of up to $2 million with a maturity of up to 30 years that’s designed to help carry businesses through tough times caused by a disaster, such as the COVID-19 pandemic. These funds are intended to cover payroll and other operating expenses that the business could have otherwise met in a non-disaster economy. The CARES Act supplemented the EIDL program with a forgivable EIDL grant of up to $10,000.

SBA Express Bridge Loans. These allow small borrowers with an existing relationship with an SBA Express lender to get up to $25,000. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loans or used to bridge the gap while applying for another loan.

SBA Debt Relief. This program will make payments on existing loans made under the SBA’s 7(a), 504 and microloan initiatives. New loans made before Sept. 27, 2020, under these programs are also eligible for debt relief.

Other federal programs under the CARES Act can also help, including:

Pandemic Emergency Unemployment Assistance. This allows sole proprietors, self-employed people, independent contractors and others not normally eligible for unemployment benefits to get them for up to 39 weeks.

Employee Retention Tax Credit. Employers may be able to get a refundable payroll tax credit for up to 50 percent of the wages paid to each employee through December 31, 2020. This is also available to sole proprietors.

Delay of Employer Payroll Tax Payments. Self-employed people can delay paying 50 percent of Social Security taxes for the period from March 27, 2020, to Dec. 31, 2020.

Delayed Income Tax Filing. Business owners can wait until July 15, 2020, to file and pay income taxes for 2019.

New business tax deductions. The CARES Act expanded deductibility of prior year net operating losses and business interest expenses.

Help may also be available from initiatives funded by local and state government and private organizations. These include:

Facebook Small Business Grants Program. This offers a total of $100 million in cash grants and free ad credits.

NYC Business Continuity Loan Fund. Although it has paused due to overwhelming interest during the crisis, this fund provided interest-free $75,000 loans to help New York City-based small firms.

LiftFund COVID-19 Loans. This SBA-approved microlender has loan programs for small businesses affected by COVID-19.

Finally, SmartAsset has a regularly updated list of the relief programs that may be available in your state.

On April 21, congress reached a deal to allocate another $320 billion to the PPP loan program. The deal sets aside $60 billion for smaller lending institutions.

It’s not clear whether existing applications might be approved or whether borrowers would need to re-apply. Some are advising applicants to be patient, in anticipation that prior applications may eventually be approved. Others suggest making additional applications to other lenders.

Chase Bank sent applicants who were not approved for PPP loans before the money ran out an email saying, “We understand that many of you are disappointed, and are frustrated because we haven’t updated you on the status of your application. We will do better, starting in the next few days.” Chase said it would continue to work through its existing queue of applications to be ready if additional funding is approved. It also promised to email applicants about status of applications.

This article will be updated as more details about the new funding emerge.

After the initial funding for PPP loans was exhausted, Congress has come to an agreement on further funding. Applicants who were unsuccessful in the first round should determine what went wrong and consider other lenders for their applications. Meanwhile, other state, local and private initiatives, in addition to federal loan and tax credit opportunities, can still be tapped by small businesses impacted by the pandemic.

• Many financial advisors specialize in working with small business owners. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
• Local Small Business Development Centers can help businesses identify and apply for suitable loans, as well as provide training for best practices in managing through crisis. The SBA maintains a searchable online database of centers.

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The post What to Do If You Missed Out on a PPP Loan appeared first on SmartAsset Blog.

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