PPP Round Two: Familiarity Breeds Success For Banks And SMBs

After a long wait and months of debate, the Paycheck Protection Program (PPP) is setting forth on its second round.

Congress has allotted $284.5 billion for PPP loans, with $137 billion set aside for “second-draw” loans for firms that need help beyond their initial loan to seek additional aid.

The rules have been tweaked this time around to favor genuinely imperiled small- to medium-sized businesses (SMBs). Firms looking for a second round of funds must be able to prove they’ve used (or mostly expended) their first loan; demonstrate a drop of 25 percent in gross annual receipts for a quarter of 2020; and refrain from receiving funds from other federal programs like Save Our Stages Grants (also provided in the second-round stimulus).

In honor of the second round of PPP loans going out, PYMNTS got the Paycheck Protection Band back together, so to speak, with Ingo Money CEO Drew Edwards, Planters First Bancorp (PFB) CEO Dan Speight, and Karen Webster. The trio, and various guest stars who joined them throughout the year, reviewed the first round of PPP funds as it was distributed from its rocky and at times confusing rollout, to the change in rules midway through, to what appeared to be a mostly successful finish.

As Webster said in their latest conversation, 51 million jobs were saved, more than 5 million businesses got loans, and some $525 billion was given out.

The good news, Speight said, is the second round looks like it will be a much smoother process, as SMBs and bankers know what they’re doing and are better able to position themselves even as they sail into a future that remains uncertain in key spaces.

Practice Makes Perfect

There are many major differences when it comes to distributing PPP funds the second time around that make the process much easier, Speight said. First, banks go into round two with a lot more knowledge about what they’re doing, what the rules are and how to find additional information if they need it. They have experience processing these applications, as opposed to having to learn how to do it in real time. It’s an experience similar to changing the tires on a race car while it’s in motion.

The firms PFB is currently working with have also come into the process with more awareness. They know what paperwork they need and what documentation is necessary. On a very basic level, Speight said, they won’t face the same level of technical and administrative issues that plagued the first round.

“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.”

Also, he noted, they are dealing with a much smaller field. About half of PFB’s first customers from the first round don’t meet the criteria and won’t be applying for second-round PPP loans. Speight credited the Small Business Association (SBA) with “doing what they said they would do” — and explained the big difference this time around lies in preparation.

Moreover, Edwards said, it makes sense that the pathway for second-round applicants is somewhat narrower because, in many cases, the first round did exactly what it was supposed to do. The first round of funds came at an opportune time to provide businesses with a bridge they needed, he noted. There is reason to hope that this round offers up the same effect.

“I would think there are SMBs that have reserves that are depleted, and they need this bridge, so I’m glad there was a second round of funds for them,” Edwards said.

The Light At The End Of The Tunnel

Although it can be hard to see in the face of a barrage of increasingly negative new reports, the era of the pandemic is ending. Some first-round applicants aren’t looking for new loans and are already moving into the loan forgiveness process, Speight said, albeit a bit slower than expected.

“I would have thought people would have jumped on, trying to get the forgiveness done quicker,” he said. “But so far, we’ve seen that to be a slow process. I think at some point, people told their professional financial staff to hold out until the first of the year to figure out how this would affect taxes. But the process has been methodical and well-structured — not just a rush to try to get the loan forgiven.”

As 2021 unfolds, however, he said he expects to see that process pick up speed, alongside an economy that both men said is showing signs of recovery — particularly in Georgia, where both are located. As Edwards noted, the state was hit by COVID-19, but not with anywhere near the force of hotspots like New York or Los Angeles.

“From a business climate standpoint, it hasn’t been the drought in Georgia that it has been in some other places,” Edwards said. “You can drive around Atlanta and just forget that there’s a pandemic going on.”

Empty storefronts pop up, Edwards said, but they don’t stay empty for long. New businesses are eager to jump in and take their place, as they are better attuned to the new, digitally enabled economy. As the vaccine is distributed and case numbers fall, both men said they believe that recovery will become a more familiar story nationwide, even in the hardest hit areas.

“I think there’s going to be a lot of pent-up demand,” Speight said. “I believe that once we get enough vaccinations out there and people start feeling comfortable again, I can’t even fathom how much they will want to get back out there. People have been at home, not doing anything, and I know many of them will start spending some money when they get an opportunity.”