America’s struggling small businesses will get a second check in 2021 after a chaotic first round of loans

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The stimulus bill that President Donald Trump signed on Sunday includes $284 billion in new aid for small businesses, and key stakeholders hope the rollout of a “second draw” will be less chaotic than an initial round of loans granted under the Paycheck Protection Program (PPP) this spring.

Last time around, the PPP was a plane still being built even after it took off.

Businesses began applying for the forgivable loans on April 3 — just days after the initial stimulus bill was signed into law — and the rollout was bumpy on the way to giving out over 5 million loans totaling over half a trillion dollars in 2020.

“It was a stopgap, but it worked,” said Dun & Bradstreet President Stephen Daffron, whose firm looked at the impact of the program, during a recent Yahoo Finance interview.

‘Major roadblocks in its early days’

The initial days of the program were marred by changing guidance and some businesses were left out of the first tranche of $349 billion in loans, which ran out in just 13 days, based on paperwork delays and where they happened to do their banking.

A pedestrian wearing her facemask and holding a cup of coffee walks past a Closed sign hanging on the door of a small business in Los Angeles, California on November 30, 2020. - Los Angeles County's new stay-at-home restrictions took effect on November 30, 2020, one day after the county reported more than 5,000 new COVID-19 cases. (Photo by Frederic J. BROWN / AFP) (Photo by FREDERIC J. BROWN/AFP via Getty Images)
A pedestrian wearing her facemask walks past a closed sign on the door of a small business in Los Angeles. (FREDERIC J. BROWN/AFP via Getty Images)

Officials hope the upcoming “second draw” of loans will be smoother with Washington and lending institutions having a year of practice in giving out these types of forgivable loans.

Still, complete guidance remains forthcoming from the Small Business Administration, which oversees the program, and there’s some worry that similar issues may crop up again.

A recent letter from groups ranging from the American Bankers Association to the National Restaurant Association called on Treasury Secretary Steven Mnuchin and SBA administrator Jovita Carranza to ensure rules and guidance “be issued and finalized before the program goes into effect.”

“The PPP’s original expedited implementation process hit major roadblocks in its early days that took weeks to recover. We have a chance now to make sure we get it right and eliminate uncertainty and confusion,” the letter reads.

In a statement, an SBA spokesperson told Yahoo Finance that the Administration “in consultation with the Department of Treasury, is working expeditiously to identify changes to program rules forms, and processes as laid out in the legislative text, and to appropriately update guidance and systems for PPP lenders and borrowers.”

They added that the agency is “committed to ensuring that the next round of PPP is launched as quickly as possible.”

How it’s set to work

The 5,593 page bill includes $900 billion of relief, including the $284 billion for the PPP to be combined with about $140 billion left over from the first round of aid.

Fewer businesses will be eligible for a second check in order to target the money and, perhaps, avoid companies like the Los Angeles Lakers and Shake Shack (SHAK) accessing loans, as both did last time before returning the money.

The forgivable loans will be capped at $2 million rather than the $10 million and businesses can have no more than 300 employees rather than the initial 500. Businesses must also be able to demonstrate at least a 25% drop in revenues from a year earlier in one quarter, and they can’t be publicly traded.

Jovita Carranza, administrator of the U.S. Small Business Administration (SBA), speaks as Steven Mnuchin, U.S. Treasury Secretary, left, listens during a House Small Business Committee hearing in Washington, DC, U.S., July 17, 2020. The committee hearing is looking into the Small Business Administration and Treasury pandemic programs. Erin Scott/Pool via REUTERS
The relaunch of the PPP will be overseen by Jovita Carranza, administrator of the U.S. Small Business Administration and Steven Mnuchin, U.S. Treasury Secretary, left. (Erin Scott/Pool via REUTERS)

The new loans will likely be set in a similar fashion as last time; businesses will disclose payroll costs and a formula will return a loan amount, usually 2.5 times the average monthly payroll. Certain types of businesses appear set to be eligible for somewhat more money, including restaurants, which face a tough winter as patrons become more reluctant to dine outdoors.

Small businesses will have until March 31 to access the new funds and the program outlined so far includes a range of other provisions — from tax deductibility of PPP expenses to allocating money based on the types of lending institutions — that policymakers hope will offer additional relief and target the money only towards the businesses that need it.

The rewriting of the rules has been prompted by ongoing revelations of how big business was able to access these loans this year. Earlier this month, the Washington Post reported that more than 1,000 Sonic Drive-In restaurants received more than $100 million in PPP loans in 2020 “despite the fact that Sonic is backed by a private-equity giant and performed well during the pandemic.”

‘A little bit easier process’

Another key feature of the bill is a simplification of the loan forgiveness process for the smallest businesses.

That part of the bill grew out of legislation initially proposed by a bipartisan group of lawmakers to allow the smallest business — those with a loan of less than $150,000 — to have their debt forgiven if the recipient simply fills out a one-page form and attests that the funds were used in accordance with PPP guidelines. The current loan forgiveness form requires a detailed accounting of how the money was spent.

The idea here is to give these businesses “a little bit easier process of getting the loan forgiven,” said Rep. Chrissy Houlahan (D-PA), one of the bill’s sponsors, in a recent interview with Yahoo Finance.

The Consumer Bankers Association — via President and CEO Richard Hunt — was quick to celebrate the streamlined forgiveness process.

“Instead of worrying about bureaucratic paperwork, businessmen and women can focus on reopening, growing local economies and paying their employees,” he said in a statement.

An analysis earlier this year estimated that if the bill passed, it would save these businesses billions of dollars and “70 million hours of owner labor” in decreased paperwork.

The bill stipulates that the SBA has 10 days from when Trump signed the bill to provide the further details, suggesting the more detailed guidance could come early in the new year.

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

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