Many new phrases have been contrived and used in the last 12 months that were rarely, if ever, uttered before on a daily basis:
The last word applies here, because the new administration put out a new set of rules for PPP last week that will force a pivot for lenders. I’m sure this is now causing some lenders to wonder why they ventured forth to participate in the Second Draw. Hopefully not because this will help a lot of sole props.
First, all PPP lending was halted on Wednesday to borrowers with more than 20 employees. The intent of the Biden Administration was to focus all lender’s and SBA’s attention to small business owners and so for the two weeks beginning the 24th, only companies with less than 20 employees can apply for a PPP loan. These small business owners are no doubt impacted, but from what I can tell, about 97% of all borrowers in this second draw have less than 20 employees anyway. Regardless, it’s good to see this administration focused on small business.
Second, they changed the calculation of the loan amount for Sole Proprietors. Instead of using line 31 of the Schedule C, now the plan is to use line 7. This change can more than double the loan amount the Sole Props qualify for. This really is excellent news and I am hoping that it can somehow be made retractive. Time will tell.
Third, it turns out that Congress did not allocate enough funds for the SBA to make good on it’s SBA Loan payment commitments. If you had an SBA loan prior to Covid, you no doubt noticed that the SBA took care of six months of payments for you last year without issuing a 1099! This year, it was supposed to be for another 3 to 6 months, depending on the criteria. Well, those time frames were cut by about a third. Look for notices from the SBA but don’t plan on the SBA picking up the full tab. This isn’t their fault; as with pretty much everything else, it can be blamed on Congress. Here is a link for more information.
There were other items changed by the administration, but you can look them up here, courtesy of the Journal of Accountancy (an excellent resource, by the way).
Finally, through February 21, $140 billion has been funded in 1.9 million loans for an average loan size of $73,000. With 4 weeks left, it is almost a certainty that the funds will not run out – VERY good news!
Even though this Second Draw has not been without its issues, I think it has been very successful and I have had the privilege of securing financing for many first time borrowers as well as many deserving Second Draw borrowers that have seen revenue drops of over 90%, many of them being sole proprietors. While many companies have been able to get by just fine, I have yet to see a sole proprietor that has not had an impact to their revenue stream because of Covid. It is hard to pivot when you are the only employee of your company; that said, there are many business coaches and groups that can help business owners, if only to commiserate with but perhaps to learn what they are doing to make it through. One of them is Craig Korotko, a Focal Point Business Coach and an excellent resource to talk to. You can reach out to him at his website.
30 days until PPP turns into a pumpkin, so get your applications in and then we’ll focus on forgiveness!