Small business owner in Chinatown, San Francisco
On Thursday, the Senate passed the PPP Extension Act of 2021 with overwhelming support, extending the deadline for the Paycheck Protection Program to May 31 from March 31.
The approval of the PPP extension came about a week after the House passed the bill, which will later be signed by President Joe Biden. In addition to delaying the application deadline by two months, the measure gives the Small Business Administration an additional 30 days to process loans.
The extension was greeted with the support of lenders and small business groups alike.
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“This is definitely a win for the smallest of small businesses,” said Alex Cohen, CEO of the Liberty SBF lender. He said he has seen a large increase in application volumes, especially from sole proprietors and independent contractors who may not have submitted an application in the first round of APPs or were unable to obtain funding.
Here’s what small businesses need to know.
1. The program deadline is now May 31, not March 31.
Small businesses have an additional two months to apply.
The extension will help lenders and businesses that have found errors in the application process. Additionally, in the current round of APP, the SBA increased security to address fraud. That meant application times were much longer for some.
“I realized that over the last 10-day week there was definitely a tone of panic that came back again,” said Chris Hurn, CEO of Fountainhead Commercial Capital, a non-bank lender. Now that the bill has been passed, everyone will be able to breathe a sigh of relief, he said.
The SBA has said there is about $ 79 billion in funding left, which restarted in January at $ 284 billion.
2. There may be more time to apply for second loans
The extra two months can also open the door for small businesses that got a first PPP loan this year to apply for a second.
Some small businesses that recently got a first drawing did not have enough time to apply for a second, as it typically takes eight weeks between loans to allow time to spend the money on payroll.
This primarily affected sole proprietorships who were unaware that they qualified for assistance through the program or who were unable to obtain funding in the previous round.
“They will certainly be a great beneficiary of this additional time in the application process,” said Patrick Ryan, President and CEO of First Bank.
Of course, there are additional requirements for a second draft loan beyond the eight week period. Small businesses must have no more than 300 employees and be able to show at least a 25% reduction in gross revenue between comparable quarters in 2019 and 2020, according to the SBA.
3. Some lenders still have different rules around PPPs.
Many non-bank lenders and smaller fintech firms kept their application portals open and intended to do so until the expiration date of the program, while many larger banks had stopped accepting new applicants in order to finish everything on time.
Now those banks are reopening their windows to help some borrowers, but some banks are following different rules.
For example, JP Morgan will resume accepting PPP loan applications and update its formula for calculating loans for sole proprietors or so-called Schedule C taxpayers. The new application with the updated formula should be available to borrowers next week, confirmed a spokesman.
Previously, the bank only allowed sole proprietors to use net earnings instead of gross income to calculate loan amounts, which would likely result in less money.
Wells Fargo and Bank of America have been offering the new sole proprietorship loan calculation formula. Additionally, both banks confirmed that they will reopen APP applications due to the extension.
4. More guidance from the SBA is likely
Questions about the program certainly remain, and the additional time could open the door to more guidance from the SBA.
For one thing, sole proprietors who applied for loans before the updated estimate was announced are pushing for the rules to be applied retroactively. The difference in loan amounts would have meant thousands of dollars more in forgivable funds for some.
“It should not be to the detriment of those who were diligent and received their applications early,” said Keith Hall, president and CEO of the National Association of Independent Workers.
Lenders have also questioned the eight-week time frame between the first and second loan for sole proprietorships, who do not have traditional payrolls. Because of this, some argue that they shouldn’t have to wait eight weeks to apply for a second loan.
“[The extension] It will give the SBA enough time to do the right thing on several of these issues, “Hurn said.
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