What Should Small Business Do Now That the SBA Is Out of Money

I will save my commentary until the end about this whole fiasco. The SBA announced yesterday that they are out of funding for the Paycheck Protection Program (PPP) and the advances on the Economic Injury Disaster Loans (EIDL). You did not get your application in, or you did, and you didn’t get any money.  Now what?

Congress most likely will provide additional funding, simply because politically it would be suicide to not to. They may have approved additional funding by the time you are reading this.  We are advising our clients to proceed as if there will be additional funding.  This means if you have not submitted a PPP application with an SBA lender, find one that is willing to take the application, and do it.  

Make sure the lender has everything they need to approve the loan once additional funding is provided.  The amounts being floated are an additional $250 Billion for the PPP loans.  Considering that they went through $350 Billion in 10 days, you want to be at the front of the line when the spigot opens.

For the EIDL loans, the SBA has said that they have no more funding for this program either.  It is not clear whether additional funding for this program is in the current discussion with Congress.  From what we have seen, the SBA has been focusing on processing the advances on the loans authorized by the CARES Act ($1k per employee up to $10k).  They do not have the manpower to process the volume of loans submitted, so I do not expect these applications to be processed anytime soon.  Word on the street is that they are looking to hire a bunch of contractors to help process them.

We are taking this opportunity to evaluate for our clients a different provision in the CARES Act, the Employee Retention Credit (ERC).  You can read this article where I discuss the options, and read about all of the recent legislative changes here.  For many employers, especially those with lower paid employees, the ERC may be a better alternative than the PPP.

Now is not the time to be navigating these troubled waters without professional help.  We stand ready to assist small business owners with these decisions and all things related to small business tax planning.  Click the link below to schedule a free consultation and review of your situation.

Commentary

In retrospect, the CARES Act worked exactly as it was designed.  When I read the original Act 3 weeks ago, and I noticed that the definition of small business was raised to 500 from the traditional definition of 50, I did not understand the ramifications.  The big banks, whose lobbyists helped write the Act, were ready when the bill was passed.  They had already identified their larger customers and loans, and worked on approving those PPP loans first.  Bank of America processed $65 Billion last week by themselves!

Put yourselves in the bank’s position.  You have a loan with a car dealership.  You are worried that they will not be able to sell cars in this economy, and you have a $20 million loan to them.  So you process a PPP loan for them, FIRST.  It shores up your existing loan, with no additional risk.  And oh by the way, the SBA is going to pay you 1% fee for your trouble.  What would you do, for the exact same amount of work and risk?  Do the $10 million dollar loan, shore up your existing loan, and earn $100k OR work with a small business on their $100k PPP loan application, and make $5k?  Simple answer, and that is exactly what they did.

So essentially, this is because of a big bank and medium sized business bailout.  The truly big companies, like Boeing, got their own money in the CARES Act.  Who was left on the short end of the stick?  You and me, small business, who Congress said they were trying to help.