The SBA-backed Paycheck Protection Program (PPP) is on hold right now after more than 1.6 million loans were approved since initial launch on April 3, 2020. Over the past two weeks companies and their respective banks have been working diligently to apply for and obtain these forgivable loans, exhausting all of the $349 billion earmarked for the program. The SBA has stopped taking applications until more funding for PPP is approved by Congress.
ACI strongly supports an extension of the program and believes that the PPP will be vital in helping the country recover from the coronavirus pandemic. While the Democratic and Republican parties are not aligned on the full scope of beneficiaries, should financial relief be expanded by the federal government, there has been bipartisan support for the additional $250 billion in PPP funding specifically designated for small businesses.
Banks struggling with loan volume
Over the past few weeks, ACI has been assisting clients with accumulating data for their PPP applications and coordinating the form submissions to our client’s respective banks. Fortunately, many ACI clients have elected not to apply, as they have been able to maintain operations and profitability in spite of COVID-19. In some instances the broker dealers have failed to qualify, primarily due to their payroll costs being allocated through Expense Sharing Agreements, whereby the affiliate of the broker dealer would be submitting the application on behalf of the consolidated entities. ACI has submitted applications on behalf of approximately 40 broker dealers to date.
While we have been extremely diligent in our efforts to get applications filed as accurately and efficiently as possible, we have experienced difficulties with the participating banks, as they are struggling with the sheer volume of applications. The banks are required to aggregate, review, and submit these applications to the SBA under extremely short time constraints, with no precedent as to what the outcome would be if the loans do not meet forgiveness criteria and the applicants then file for bankruptcy. Both the logistics and the risk have led to a lower success rate on approvals than we had initially hoped.
The SBA announced on April 16, 2020 that it would not accept any more applications until additional funding is authorized by Congress. It is unclear at this time what will be required for companies who are still seeking SBA loans as part of the potential second wave of PPP funding. We are hopeful that the already submitted applications will remain in queue and will be processed but there have been indications those who have previously submitted applications without success may need to re-apply, as stated by SBA spokesman Christopher Chavez.
While every firm’s situation is unique, we believe any business that applied and is still waiting for approval should be prepared to resubmit, if necessary, when the program is renewed. If you haven’t applied yet but are considering doing so, it would be prudent to have everything ready for when the admission process opens again. ACI is prepared to re-submit applications on behalf of our clients so we can maximize the likelihood of success for everyone who is searching for financial relief in these difficult times.
For your information, here are the program details:
Paycheck Protection Program loans explained
The CARES Act’s Paycheck Protection Program (PPP) allows qualified businesses with fewer than 500 workers to apply for a Small Business Loan to meet payroll costs. The loan is limited to the lesser of $10 million or the company’s average total monthly “payroll costs” for the 1-year period ending on the date the loan is made, multiplied by 2.5, plus any refinanced loan under the Economic Injury Disaster Loans (EIDL) program obtained after June 30, 2020.
Proceeds from a PPP loan may be used for payroll costs (as defined), employee benefits and commissions, interest payments on mortgages, rent, utilities, and interest on debt incurred before February 15.
A business can apply for loan forgiveness in an amount equal to the cumulative amount of payroll costs, rent, utilities, and interest paid on mortgages during the eight weeks after the loan is made. The amount forgiven is limited to the extent compensation and headcount are reduced relative to a base period, and any amount forgiven will not be taxable to the borrower.
ACI will continue to provide updates on our Resources page as we manage together through this challenging time. We hope everyone is taking proactive and precautionary measures to remain safe.