Essential Avenue appears ahead to the PPP relaunch because the Covid outbreak worsens

Manager Pat Ryan stands at the counter at the Pig Pit BBQ in Cohoes, NY on December 9, 2020. The pandemic has knocked down business on Boston Water Street.

Craig F. Walker | Boston Globe | Getty Images

With the Paycheck Protection Program relaunched, small business owners and advocates eagerly await access to much-needed lifelines as the Covid-19 pandemic continues to grasp the nation.

The Small Business Administration released new tentative final rules for the program late Wednesday and set a start date for Monday on Friday. The loans are available through March. The revised program aims to address problems of both fraud and access to capital for underserved businesses.

The SBA and finance department said municipal financial institutions will be able to extend PPP loans to first-time borrowers on Monday. Then, on Wednesday, lenders will be able to offer PPP loans to secondary borrowers. The PPP program will be open to all participating lenders shortly thereafter.

The SBA also said it would direct lender inquiries to small lenders who can help traditionally underserved communities.

In addition, senior administrative officials said there will be a lapse of time between filing applications from lenders and receiving a lender credit number to ensure compliance, and loans are unlikely to be approved on the same day.

The $ 284 billion program reopens, with a focus on companies that critics have overlooked in previous rounds of aid. There is support for businesses with fewer than 10 employees and separate allocations for community and mission lenders and borrowers in low and middle income communities.

The potential lifeline for small businesses is that the U.S. has reported a record daily death toll for five of the last 10 days, according to Johns Hopkins University. It is more hopeful that the pace of vaccinations will increase as the rollout becomes more dynamic.

Potential for more borrowing

Lending advocates are confident that the new round of funding will help fill the gap in the first two cycles of the program for both truly small and minority businesses that may have missed last year.

In the first two weeks after the program launched last spring, larger corporations, publicly traded companies, and even sports teams were able to access loans. Officials said they expect there will be enough funding for first and second borrowers.

“One of the biggest things we wanted to see was prioritize the small businesses, businesses with 10 or fewer employees, mom and pop businesses, and non-employers,” said Ashley Harrington, director of federal prosecution and senior policy counsel at the Center for Responsible lending.

“There are also closings for financial institutions for community development and depositaries for minority groups, which are the lenders who have best served the communities and borrowers of color,” she said. “It is very helpful to make sure we get funding for the companies that were not included in the first round of funding, have had problems for some time and those in communities that have been hardest hit by the pandemic and the economic fallout from the pandemic.”

Kevin McCarthy, Republican of California, speaks during a press conference on helping small businesses during the Covid-19 pandemic on the steps of the U.S. Capitol in Washington, DC on December 10, 2020.

Andrew Caballero-Reynolds | AFP | Getty Images

Companies with fewer than 300 employees that experience a 25% decline in revenue are also eligible for secondary draw loans with a maximum loan amount of $ 2 million. First time borrowers can access up to $ 10 million. The revised PPP also streamlines the forgiveness of smaller loans under $ 150,000 and allows companies to request deductions from covered expenses.

Recent data from the National Federation of Independent Business shows that a quarter of small businesses say they’ll have to close their doors in the next six months if economic conditions don’t improve, up from 20% last month. Additionally, 91% have used their entire PPP loan, and nearly half say they would return for more.

“I have a feeling that the new round of PPPs will get more attention because although it closed with leftover money, the outlook and business situation has changed since August,” said Molly Day, vice president of public affairs for the National Small Business Association. “We’re facing more mandate and school closings than we expected a few months ago, and my guess is that many of the neediest small businesses will be holding a second draw and those that either didn’t apply or weren’t approved, think again.”

Enough to stay afloat?

The need for help is great, but for many, PPP funding may not be enough to keep them afloat.

According to Opportunity Insights Economic Tracker, the number of open companies in the U.S. decreased 29% from January 2020 to December 9, 2020. Given the recent census data projects, there are more than 31 million small businesses in America and 6 million of those employees, that estimate means that more than 1 million businesses with workers could have closed in the past year. It is unclear how many will become permanent closings.

“The bottom line is that small businesses need customers and the aid package is a temporary bridge to an uncertain economic landscape,” said Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, in a statement to CNBC. “There are only a few sectors where government aid is not going to help, given the financial void some are in and the very long recovery period and forever changing customer preferences or habits.”

– CNBC’s Betsy Spring contributed to this report.

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