Changes to a federal loan program that has helped small businesses weather the COVID-19 pandemic could generate a “huge uptick” in loan demand that has waned in the last few weeks, according to U.S. Small Business Administration officials.
Under changes to the Paycheck Protection Program signed into law on Friday, millions of small businesses across the country that received a PPP loan since early April now have more time to use the money and can direct less of it toward payroll expenses to earn loan forgiveness.
“It absolutely provides greater flexibility for borrowers to qualify for loan forgiveness,” Rob Scott, administrator for the SBA’s six-state Great Lakes Region, said today in a media conference call.
The changes could prompt small businesses that were hesitant to seek a PPP loan because of the prior requirements to now proceed with an application, Scott said.
“With this change in law, I think you’re going to see a huge uptick in PPP loans,” he said. “We get calls everyday at the district offices that there are certainly businesses out there that could use these funds if their states are still closed or whatever the issue may be why they can’t open.”
The Paycheck Protection Flexibility Act that Congress passed and President Trump signed late last week tripled from eight weeks to 24 weeks the amount of time small businesses have to use the PPP money. That helps small businesses that have been completely shut down for weeks or are operating on a limited basis and without full staff.
The law also reduces to 60 percent from 75 percent how much of the loan must go to payroll expenses, providing additional flexibility as well in how PPP loan recipients can use the funds to cover operating expenses such as rent and utilities. Congress also extended from two to five years the time a borrower has to repay loans at an annual interest rate of 1 percent for any amount that does not qualify for loan forgiveness from the SBA.
The SBA will likely issue modified application forms for loans and to seek loan forgiveness, as well as guidance that follows provisions in the Paycheck Protection Flexibility Act, Scott said.
“We haven’t had a lot of activity when it comes to PPP loans” in recent weeks, he added, because many small businesses that had not already applied doubted they could meet the prior requirements to use the money and earn loan forgiveness. Some small business owners were “scared” they would not qualify for forgiveness and would have to pay back the loan in just two years, he said.
“With this new guidance and the coverage period that opened up to 24 weeks, it’s going to allow more businesses to relook at the program and think, ‘OK, I can actually spend the monies that are sent to me, 60 percent on payroll, and not be up against a deadline,’” said Scott, who described a recent conversation with a restaurant owner at an event in Cincinnati, Ohio, who got a PPP loan and was “terrified of that two-year term.”
“He was like, ‘Listen. If I have to pay it back and it’s not forgiven, it’s going to put me out of business. I’m not going to afford the payment every month,’” Scott said.
Nationally, the SBA as of June 6 approved more than 4.5 million PPP loans totaling for $511 billion. The SBA has about $135 billion in PPP funding to lend, Scott said. In Michigan, the SBA approved 114,361 PPP loans for $15.7 billion.
The SBA is accepting PPP loan applications until June 30.