The Next Steps To Save Small Business

We knew it wouldn’t last forever, but the speed at which the CARES Act’s Paycheck Protection Program (PPP) funding dried up is stunning.

The $350 billion funding pool established for small businesses struggling to meet their bills because of the coronavirus, ran out of money in less than two weeks, and politicians in Washington are battling over the next round of funding and how much it will be.

According to the Small Business Administration (SBA), more than 1.62 million applications were approved by about 5,000 lending partners. Just how much of that money is already in the bank accounts of small business owners is yet to be determined.

Small business owners are not only competing against their peers, they also are competing against corporations, such as Ruth Chris Steakhouse, a corporation with 5,000 employees that reported revenues of $135 million in the fourth quarter of 2019. Ruth Chris obtained $20 million in PPP funding, according to a report in the Wall Street Journal. Earlier, the newspaper reported that most of the government-backed loans approved have been for amounts less than $350,000, while approximately 5% are for amounts greater than $1 million, according to SBA figures.

COVIDLoanTracker.com, a website established by group of small business owners concerned about the timeline for receiving loans from the government, found through its online survey that only 574 of the 10,500 businesses (about 5.5%) that applied for PPP loans have received them. Additionally, only 546 of 9,729 applications – a less than 6% success rate – have obtained SBA Economic Injury Disaster Loan (EIDL) money related to the coronavirus pandemic so far.

Already we have seen that the loans that have been made are going to companies that have prior relationships with banks. According to COVIDLoanTracker, more than 80% of companies that received PPP money had pre-existing relationships, and nearly three-quarters (73.8%) of businesses that got SBA EIDL funding had existing relationships, as well. This should not be surprising. If a business is applying to a bank that does its payment processing and handles its credit card charges, it is in the lender’s self-interest to help save a business that is already generating revenue in fees and interest, rather than a new prospective borrower.

Just how badly are small businesses hurting? According to an online survey by Main Street America, more than 70% of American businesses have experienced a drop in revenues of more than 50%. This figure includes almost 57% of businesses that have seen a more than 75% decrease in revenues and 15.3% of businesses that are down between 50% to 75% from normal revenues. Only 4.5% of businesses have maintained their usual revenue levels, while slightly more than 1% saw their figures rise.

If the government truly wants to save small businesses from drowning, Congress must act today and come to agreement on how much more in small business funding it will approve and when the money will become available.

In a joint statement issued last Wednesday, Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza reported that the SBA has processed more than 14 years’ worth of loans in less than 14 days.

“We urge Congress to appropriate additional funds for the Paycheck Protection Program – a critical and overwhelmingly bipartisan program – at which point we will once again be able to process loan applications, issue loan numbers, and protect millions more paychecks,” Mnuchin and Carranza said.

“Politicians on both sides of the aisle want more money added to the PPP pool, but they disagree over how to do it,” they continued. “Republicans largely want to add another $250 billion to program, with no asterisks; Democrats want to put some restrictions on the money to specify that more of it goes toward underbanked businesses, hospitals, and state and local governments.”

Speed is of the essence. That is why nearly two dozen leading fintech players, including Biz2Credit, Fundera, Kabbage, Lendio, and OnDeck, wrote to Congress saying that they stand ready to assist in deploying the financing via their proven transparent networks. Fintechs will be able to help speed up the process by which SBA-approved lending partners submit small business loan applications.

In the meantime, small business owners should get their information ready for submission. Typically, incomplete loan applications or a lack of supporting documents are the most common reasons why banks reject loans.

While folks in Washington are sorting out the details for the next round of PPP and SBA EIDL funding, business owners should spend their time getting their documents ready, including their 2019 tax returns (or their 2018 returns, if they have not yet filed for last year). 

As soon as the next round of funding becomes available, they should have all that information ready to submit and apply immediately. The quest for funding is like the opening of the Oklahoma Territory in the 1889, the ones who got there “sooner” were able to stake their claims to the land. Speed is of the essence now. We have already seen how quickly the government funding dries up.