With four days left to apply, there’s still $126 billion available to small businesses that could benefit from a forgivable loan, or at least a low-interest one, to recover from the havoc of shutdowns during the coronavirus pandemic.
But are there any more businesses that want one?
It’s been crickets at many Colorado banks and lending organizations, which saw applications for federal Paycheck Protection Program loans plummet in popularity since May, shortly after a second round of money was approved by Congress.
Changes were made this month to make it easier for business owners to use the loan — and qualify for 100% forgiveness. They no longer had to use 75% on payroll, but could now use 40% on other expenses. Borrowers also now have 24 weeks to use the money, instead of eight. But there’s been a major slow down in applicants. The last day to apply for a PPP loan is June 30.
“The recent changes passed by Congress … are all highly positive,” said Koger L. Propst, president and CEO of ANB Bank. “However, even with the changes, we are still seeing tepid demand.”
In Colorado, 101,038 small businesses — including The Colorado Sun — were approved for $10.3 billion worth of loans, as of June 20. That’s an increase of a mere 4,753 loans since May 16. The value of the loans, however, has dropped by $42.3 million during the same six-week period.
“A lot of companies gave it back, especially those that (borrowed) over $2 million and knew they were going to be audited, or were public companies,” said Bruce Alexander, president and CEO of Vectra Bank Colorado. “We also had some companies apply to three banks at the same time but obviously they could only get funded from one bank. I think that confused some of the numbers in the application queue. But the reason it dropped is some people gave it back.”
Broomfield-based DMC Global Inc., which received a $6.7 million loan, returned it after the auditing rule came out. Red Lion Hotels Corp in Denver, which received a $4.2 million, also gave back its money. But some of Colorado’s largest borrowers held on to their loans, including the owner of STK Steakhouse and Kona Grill, which scored two loans for a total of $18.3 million; and Good Times Restaurant landed $11.6 million.
The U.S. Small Business Administration, which is administering the PPP loans, has also offered other assistance during the COVID-19 outbreak, which could account for less interest in the Paycheck loan. The Economic Injury Disaster Loan, has so far provided 69,000 Colorado businesses with $220 million in loans, said SBA Colorado District Office director Frances Padilla. But there’s no one particular reason why the process has slowed.
“As to why only a specific number of borrowers have received PPP assistance in the last two weeks, we couldn’t speculate on the specific needs of individual businesses,” Padilla said in an email. “However, we know both the PPP and EIDL programs have infused much needed capital, providing an essential lifeline as our state battles through the pandemic and its effects on our small businesses, their employees and their families.”
So far, Vectra Bank has processed 3,642 loans for a total of $482 million. The potential jobs preserved comes in at 31,199 with the bulk at companies with fewer than 50 employees.
But with just a trickle of demand from customers, Alexander said the bank is processing loans within minutes and the SBA is responsive to getting loans approved. He expects last-minute applicants on Tuesday could still be approved on the same day, but if you’re thinking about it, you should apply sooner, he said.
Changes to limit, then expand
It’s been a whirlwind for banks and small businesses that jumped into the PPP mix. The initial $349 billion loan program was a knock-out success and ran out of funding within 10 days. Congress approved an additional $310 billion and the SBA began accepting applicants again on April 27.
But the inequities soon became clear. Large restaurant chains, hotels and publicly traded companies qualified for millions in loans. And according to early guidance, they were allowed to apply. But the SBA and Treasury Department later changed some rules to let large borrowers know that they would be audited, they would have to prove business was hurt by the coronavirus and they didn’t have other funding sources to tap.
Several companies returned the money within days of public shaming, including 13 public companies that gave back $170 million, according to The Wall Street Journal.
The SBA also has continued to revise and update rules and guidance. One of the first rules in April gave borrowers eight weeks to use the loan. That changed after Congress allowed an extension to 24 weeks, as well as lowering how much must be used for payroll. That dropped to 60%, from 75%. (Use less than 60% on payroll and the loan will only be partially forgiven.)
One of the latest updates spelled out how borrowers would be publicly named: Business names, locations, jobs supported and loan amount ranges will be disclosed for loans above $150,000.
But the changes didn’t cause a jump in applications. Much like Colorado, the nation saw total loan value drop. As of June 24, the SBA approved about 4.7 million loans for $516.5 billion. Six weeks ago, 4.3 million loans for $531.2 billion were approved.
“I think there is a lot of confusion, maybe some intimidation about it and just feeling that there’s been so much going on that they don’t think it’s worth it,” said Ceyl Prinster, CEO of Colorado Enterprise Fund, which works with small businesses that aren’t able to get traditional funding from a bank. “But for the people who do get one, once we start forgiveness and people don’t feel like, ‘Oh, I have a loan,’ but (instead) “I get to keep the money. And I saved my business or helped my business’ then it’ll be a great feeling.”
A recent National Federation of Independent Business survey found that 97% of the organization’s members who had applied for a PPP loan had received one. Of those, 59% planned to take advantage of the 24-week extension. But 14% said they anticipate they’ll have to lay off workers to continue operating as the money runs out.
“It hasn’t been the magic panacea we had hoped for but it has helped,” said Tony Gagliardi, NFIB’s state director for Colorado. “With these economic times, you’ve got to go with the flow.”
Businesses that really wanted a loan seem to have received one, says the Colorado Bankers Association.
“Banks have seen a decrease in PPP loan applications in recent weeks. We believe that indicates the bulk of the need has been met, while bankers are working to ensure remaining applicants are well served ahead of the deadline,” said Amanda Averch, a CBA spokeswoman.
Another federal program, the Main Street Lending program, will launch soon. But, Averch said, “would-be borrowers should be aware that the MSLP does not include the potential of a grant or forgiveness of a portion of funds borrowed.”
For businesses hoping to turn a loan into a grant, the paycheck program is still one of the best options, said Prinster, at the Colorado Enterprise Fund, which has closed on 446 loans valued at $13 million. She thinks some small businesses don’t realize the program is still taking applications.
“There’s probably a lot that think it’s over,” said Prinster, whose organization is taking new applications through Monday. “And then there’s probably some that just think it’s gonna go on for a while. I think it’s just being confused about it or not knowing or not paying attention.”
Many of the rule changes were in response to small businesses and banks.
The latest, on Tuesday, took the complicated 11-page forgiveness form and cut it to four pages. They also released a two-page EZ form for businesses that have no employees or did not reduce employee wages or hours by more than 25%.
“And really what spurred them to do that was the banks. The lenders came back to the SBA and Treasury after the 11-page application was released and they said, ‘This application is just too complex, too complicated,’” said Sarah Mercer, an attorney and lobbyist at Brownstein Hyatt Farber Schreck who has followed the federal loan guidance closely.
The forgiveness process doesn’t begin until after Tuesday, June 30, when the SBA stops accepting new loans.
Some banks are already prepping for that. That’s partly to find out whether customers plan to extend their term to 24 weeks. There was no requirement for companies to let the banks know.
Alpine Bank Colorado, which had loaned $303.4 million to 4,084 businesses as of Wednesday, developed a tool to help its customers figure out the forgiveness process. Glen Jammaron, Alpine’s president, said the service is similar to an online Turbo Tax form asking how much was your loan, how you spent it and other information.
“We felt like we had to do something so that there was a solution for our customers (so) there weren’t 4,000 people trying to figure out a different way to do this,” Jammaron said. “Then it’d be easy for us to consistently process and take care of them in an efficient and timely way.”
Vectra Bank plans to open its forgiveness portal on July 6 so clients can access a forgiveness calculator.
“The rules keep changing and the time frame keeps changing and so forgiveness hasn’t really started yet,” Alexander said. “I think any sense of urgency of doing this will (continue to) mutate for a while.”
Mercer, the attorney with Brownstein, said that even as the process has had its twists and turns, the SBA appears to be listening and trying to make the process simpler. An update on Monday clarified when a business can apply for forgiveness if they are going the 24-week route. They can apply early. And if they only spent the loan on payroll, they can use the EZ form.
“It’s not that businesses have 24 weeks of payroll now. They still have that 10 weeks” which was the maximum they could apply for, she said. “But now they can use it in a more flexible way over that 24-week period. But if they use it in 12 weeks or 15 weeks, they don’t have to wait. They can just apply for forgiveness right away, which is a really great clarification.”
This story was updated at 8:40 a.m. on June 26, 2020 with comments from SBA’s Colorado District Office director Frances Padilla.