CARES Act PPP Do-Over Provides More Money, But Doesn’t Increase Speed Of Funding

The U.S. Senate has smartly agreed on the Paycheck Protection Program (PPP) Increase Act of 2020. This legislation amends the initial law by raising the appropriation level for PPP loans from $350 billion to $670 billion. It also authorizes the level for SBA Emergency Economic Injury Disaster (EIDL) loans to increase from $10 billion to $20 billion.

The bill sets aside money for insured depository institutions, credit unions, and Community Financial Institutions (CDFIs) and defines Community Financial Institutions that help small firms and companies located in under-served areas. Now, $30 billion is set for loans made by Insured Depository Institutions and Credit Unions that have assets between $10 billion and $50 billion. Another $30 billion goes to loans made by CDFIs, small insured depository institutions, and credit unions with assets less than $10 billion.

Additionally, the measure appropriates an additional $50 billion for the Disaster Loans Program Account to remain available until expended, an additional $10 billion for Emergency EIDL Grants to remain available until expended, and $2.1 billion more for the Salaries and Expenses account to remain available until Sept. 30, 2021. The measure also allows agricultural enterprises as defined by section 18(b) of the Small Business Act (15 U.S.C. 647(b)) with not more than 500 employees to receive EIDL grants and loans.

The House of Representatives vote and approved the bill on Thursday and President Trump signed it, as expected.

Small business owners who have already applied for PPP and EIDL funding should be able to get funding with this extension of the CARES Act. They’ve already submitted the information. Those who have not already applied should do so very quickly. We have already seen the frenzy. Many small businesses need help, and they cannot and should not wait to submit their loan applications.

Part of the problem was that although the PPP program was set up to help firms with 500 workers or less, a number of large public companies that applied for and were granted millions in PPP funding. Among them were DMC Global Inc., which operates a family of technology businesses serving the energy, industrial and infrastructure markets and has a $405 million valuation, according to CNBC.  The Fiesta Restaurant Group, which operates and franchises the Pollo Tropical and Taco Cabana fast-casual restaurant chains, received $10 million in PPP loans. Fiesta Restaurants generated sales of $660 million in 2019. Shake Shack also was granted $10 million but decided to return the loan amid public outcry and was able to secure funding elsewhere.

The SBA reported that 4,400 of the approved loans exceeded $5 million. However, the agency also reported that large corporations received less than 10% of the funding and that the typical loan size was $206,000, according to AP. The loans will be forgiven if the recipients maintain their staffing levels. 

Treasury Secretary Steven Mnuchin has indicated that large corporations would now be blocked from obtaining funding through the program, and President Trump has called upon big companies that were granted government-backed loans to return the money.

Despite lawmakers’ best intentions, what they are doing might not be enough. The infusion of $320 billion into the PPP lending pool might not be sufficient. Indeed, it is likely that the second round of government funding might run out just as quickly as it did in the first round. There has to be cause for concern when a bank the size of PNC posts on its website:

“Unfortunately, with the significant volume of applications already submitted to PNC and other lenders, it is likely that not every qualified applicant will receive loan proceeds under the PPP even if Congress authorizes additional funding.”

Not only is the amount likely to be insufficient, but another issue also is the speed of funding. The extension has expanded the lender pool to include more CDFIs and credit unions, but the legislation has not spelled out a role for fintech companies.

Fintech firms can play a role in leveling the playing field and help mom-and-pop sized businesses — that may not have longstanding relationships with banks — to get funding processed more quickly than before. The fintechs are proficient in data collection and packaging loan applications swiftly and efficiently in order to get money swiftly into the hands of small business owners that need it desperately.

Hopefully, the CARES Act PPP do over will help struggling businesses, many of which will go bankrupt if they don’t receive an infusion of funding sometime soon. With creditors and landlords knocking on the door, small business owners can ill afford to be a day late and a dollar short.