Another round of Paycheck Protection Program (PPP) funds is readying to hit the bank accounts of small business owners, this time slightly modified from the one that went out in spring of 2020. As of Monday (Feb. 22), President Biden announced a slew of upgrades aimed at making the forgivable loans more accessible to a wider array of business owners, including gig workers and sole proprietors, as well as helping the smallest of the SMBs.
Among the complaints during the first round of PPP funds distributions was that truly small businesses were at a disadvantage when it came to collecting — despite representing 98 percent of American small businesses, those with fewer than 20 employees only collected 45 percent of the funds. There were also complaints about racial disparities in funds distribution.
“It’s a great idea to make sure that we’re prioritizing small and minority-owned business owners because we saw that they were left out of the process,” said Marvin Owens, the chief engagement officer of Impact Shares and former senior director of economic development at the NAACP, told CNBC. “What you saw in the beginning of [the] PPP was really a revealing of the disparities around access to capital.”
This time around, those super small SMBs will get a leg up in the application process. Starting yesterday (Feb. 24), the Small Business Administration (SBA) will only be accepting applications from the self-employed and those with fewer than 20 employees for the next two weeks. It is one of many changes to the program designed to make the funds more accessible to more proprietors. “This is one of our country’s main economic drivers,” said Awesta Sarkash, government affairs manager at Small Business Majority, an advocacy organization. “Our main employers are hurting, and so you see a ripple effect.”
In addition to getting the two-week headstart, firms are are also allowed to apply for either a first or second PPP draw this time around. To get a second PPP check, the applicant must have already spent their first disbursement and must have seen at least a 25 percent drop in income during any quarter of 2020.
But the biggest change to the PPP this time around, according to most, is the additional support for sole proprietorships, the self-employed and gig workers/independent contractors. The newest PPP iteration has officially updated the formula by which the payments for such workers are calculated — which means gig workers will be eligible for larger checks. But there is a catch: The new formula won’t go into effect until the first week of March.
While the SBA has provided some information on how the formula for loans will change, as of yet it has not given any specifics to the lenders who will disperse the loans — so businesses that are technically qualified to apply within the two-week super small business window will likely have to hold off for a week or two while the new rules are sent to lenders.
Those lenders are anticipating an easier payout process for the second round of PPP. Even with the imminent rule changes, Planters First Bancorp CEO Dan Speight noted in a conversation with Karen Webster and Ingo CEO Drew Edwards, they are still anticipating a fairly smooth path on the distribution side. “We’re not seeing the panic that we saw the first time, or the fear among businesses that they were going to miss the opportunity to collect it,” Speight explained. “I think this time, they feel like the money will be there, and now they’re trying to understand the rules and have opportunities to talk with their lenders to better understand if they will qualify.”
Under the old system, for gig players and other solo workers, the SBA used net profit information from tax returns as a stand-in for payroll costs. That net profit line also included deductions, which reduced or eliminated profit numbers for some, yielding smaller loans or rendering them ineligible. The new formula will use gross income, a larger number than net income, meaning many firms will get more money in forgivable loans. “It’s a tremendous change,” said Keith Hall, president and CEO of the National Association for the Self-Employed.
A tremendous change in a PPP rollout process that has already hit a few bumps: Various glitches have plagued the process thus far, including one that saw thousands of people turned down because they were erroneously registered as having a recent criminal conviction. But glitches aren’t exactly new ground for the PPP, and didn’t manage to derail it the first time around, though the complaints were voluminous. The real test of the program is whether it will get the right entrepreneurs the correct amount of funds they need to keep their heads above water, and whether it will get those funds there on time.
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