By Mitchell Schnurman/The Dallas Morning News
WWR Article Summary (tl;dr) As Mitchell Schnurman reports, “the rules on PPP loans were loosened in significant ways, which will help companies struggling to reopen their businesses. Borrowers get more time — 24 weeks instead of eight weeks — to spend the PPP loan and qualify for forgiveness.”
One of the best government deals ever just got a little sweeter, and over $100 billion is still available for any companies that have been left out.
The Paycheck Protection Program, which launched in April as part of a huge coronavirus relief package, allows small businesses to borrow up to 2 1/2 times their monthly payroll. The federal loans carry a 1% interest rate and will be forgiven if a company maintains its workforce.
Essentially, the loans can become grants, and the offers were so popular that the first $349 billion didn’t last two weeks. Congress quickly added $320 billion, and plenty of money is still available — but only until June 30, the last day to get a loan approved.
Through Saturday, over 4.5 million loans had been approved nationwide, including nearly 362,000 in Texas, according to the U.S. Small Business Administration. The average loan size was about $113,000, an indication that much of the aid was reaching its target audience.
On Friday, the rules on PPP loans were loosened in significant ways, which will help companies struggling to reopen their businesses. Borrowers get more time — 24 weeks instead of eight weeks — to spend the PPP loan and qualify for forgiveness. They can get exceptions to the workforce requirement if employees decline to come back or business is restricted. And if they must repay the loan, they can stretch out the terms to five years, up from two.
The additional flexibility was approved overwhelmingly by Congress.
“Finally, they heard us,” said Tom Kenney, a Texas restaurant owner who lobbied for the changes and appreciated the bipartisan response. “The clock was ticking, and it was almost midnight.”
Kenney owns Napa Flats Wood-Fired Kitchen, which has locations in Austin, College Station and Tulsa. Sales are down by up to 60%, depending on the restaurant, and he borrowed just over $225,000 for each location.
His initial eight-week period for using the loans would have expired in mid-June, and only about a quarter of his 160 employees have returned to the job. He would not have qualified for much loan forgiveness under the old rules. Now he has a chance to rehire people later and get the benefit.
“I don’t need people now; I need ’em when business starts to pick up,” he said.
Even if his loans are not entirely forgiven, he’s not complaining. “If I didn’t get this money, I wouldn’t have made it,” Kenney said.
Executives in Texas are using PPP funds for a range of purposes. Almost 8 in 10 said they prevented layoffs and furloughs, and a majority said the money helped pay rent and other bills, according to a survey by the Federal Reserve Bank of Dallas.
When the loan program launched, it was advertised as first-come, first-served. That led to a run on loans, as one local banker put it, and many small businesses were locked out.
The Associated Press reported that at least 94 publicly traded companies and subsidiaries had tapped the program, and nine had borrowed the maximum amount, $10 million. The government said it was unlikely that publicly traded companies qualified for the taxpayer-backed loans and said it would audit loans over $2 million.
Several companies repaid the money, including Shake Shack, Potbelly and Ashford Inc., which has over 100 hotels and had received nearly $60 million in PPP loans.
Between the additional oversight and the additional funding in the second round, it appears that most potential borrowers have broken through. In a recent survey by NFIB, a leading small-business advocate, over three-quarters of members said they had applied for a PPP loan and 93% got one.
In early April, loans were being approved at a rate of about $24 billion a day, said Robert Klingler, a lawyer with the Bryan Cave law firm. At the start of the second round, roughly $35 billion was being approved daily. In the week ended Saturday, the net new PPP lending was about $1 billion a day.
“The only demand we’re getting is from out-of-area borrowers,” said Cynthia Blankenship, corporate president of Bank of the West, which has nine locations, including its headquarters in Grapevine. “There is an underserved, forgotten sector that would greatly benefit. But the challenge there is financial literacy.”
Bank of the West handled almost 1,000 PPP loans, valued at about $87 million, she said. One surprising trend is that many borrowers have been slow to use the money, instead letting it remain in their bank accounts.
“I thought it would flush out, but it’s just been trickling out,” Blankenship said.
She believes many companies were worried about qualifying for loan forgiveness and didn’t want to add to long-term debt. At the same time, extra cash is really valuable now, even for companies surviving the pandemic.
“We’re OK on June 8, but where will we be on Sept. 8?” said Allan Peiser, managing partner at Goldin Peiser & Peiser, an accounting and advising firm in Dallas. “It’s the uncertainty that’s so disconcerting.”
His firm, which has about 75 employees, borrowed just over $1 million in a PPP loan. He said the company hasn’t laid off or furloughed workers, and hasn’t cut salaries.
“There’s no question that having excess liquidity gave us more confidence about keeping the workforce,” Peiser said.
His advice to clients is to apply for the money, especially with the many additional ways to qualify for loan forgiveness. On Saturday, over $130 billion was still available in the federal program.
“If it throws you a lifeline and gets you through this, that’s a good thing,” Peiser said. “Even if you forget the forgiveness, 1% interest is a pretty good deal — especially if it keeps you viable.”
Many companies and bankers are pushing for another improvement. To have a loan forgiven, a borrower must complete an 11-page application and submit many pages of documentation.
There are proposals to waive the paperwork for smaller loans — less than $250,000 or $350,000. That would exclude about 90% of borrowers, depending where the line was drawn, and would ease the regulatory burden on companies and lenders.
Andy Ellard, co-owner and general manager of Manda Machine Co. in Dallas, borrowed $204,000 in a PPP loan. His company has added one worker in the past eight weeks, so he’s certain it qualifies for loan forgiveness. Still, he’s balking at starting the lengthy application.
“It’s very confusing, and I don’t know if I should bother filling it out,” Ellard said. “I don’t want to spend hours completing the paperwork and generating all the payroll data if it’s not gonna be required.”
If that change happens, companies would have one more reason to tap the federal bounty.
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