By Matthew Marcellino

On April 24, 2020, the folks in Washington, D.C. signed into law the Paycheck Protection Program (PPP) and Health Care Enhancement Act (Enhancement Act). Similar to Round 1, addressed in brief below, provides approximately $310 billion in funding to replenish the federal Paycheck Protection Program (Round 1). In that legislation, there was an earmarked amount of $60 billion for small banks, credit unions, and community lenders serving businesses in the minority, underserved and rural communities.

The original program was the Coronavirus Aid, Relief and Economic Security (CARES) Act. It was designed to aid small businesses with forgivable loans for payroll and other qualifying expenses, such as rent or mortgage payments. That program rolled out in March but quickly ran out of proceeds. And by quickly, I’m talking ludicrous speed without seatbelts.

Businesses seeking to access the new funds should have submitted their applications to their lenders last week when the Enhancement Act announced the release of new funds. Just like the first round, demand for the loans will be through the roof. Did I mention the phrase “forgivable loans?”

Round 1 – the Initial PPP Implementation

Almost a month ago, in the throes of our economy battling the COVID-19 pandemic, Congress passed the CARES Act, which provided low-cost financing to businesses impacted by the measures, including $349 billion for the PPP.

The U.S. Treasury and the Small Business Administration (SBA) implemented the PPP through existing lenders. You may recall that the SBA had some initial speed bumps explaining the eligibility requirements, rules, and procedures for disbursing funds. It felt like they changed daily. At one time, your CPA could have handled the process for you. The next day it was just you and your lender…and all of their clients.
However, on April 3, participating lenders began accepting applications. Two weeks later, that $349 Billion was gone. Congress did the right thing to step in, but underestimated the “need” or failed to consider how the lenders might disburse the money.

Time might tell. However, though only one percent of all PPP loans were over $5 million, rumors quickly circulated that banks may have put their existing customers and publicly-traded companies with pre-existing access to the capital markets ahead of the Mom & Pop Shops. I came across a survey by the National Federation of Independent Business who said it found only 20% of applicants received loan proceeds before the allocation of the program’s funds. Who knows what’s accurate at the moment on that, but this brings us to Round 2.

Round 2 – More Money

The additional funds authorized by the Enhancement Act will allow lenders to fund loans for businesses with approved or pending PPP applications, continue underwriting applications in their queue and resume accepting new applications. If you missed the first round, make sure your banker didn’t toss out your application because that application will be used again for Round 2. Specifically, do not submit a second application if you already submitted an application during Round 1. But again, double-check with your lender to make sure your application is still in the queue. If you have not yet applied for a PPP loan, call your lender. If Round 2 is anything like Round 1, the additional funding of Round 2 will be disbursed quickly and likely on a “first-come-first-serve” basis.

Another aspect of Round 2, the Enhancement Act, is that it reserves $60 billion for small banks, credit unions and community lenders serving businesses in the minority, underserved and rural communities. These communities could express higher demands for PPP loans because they may have fewer options within the financial lending industry.

Requirements Remain the Same

Round 2 does not change the PPP framework in Round 1. Borrowers are still required to use at least 75% of the loan proceeds for payroll costs. In addition, and this may be a HUGE detail for your company, for you to qualify for loan forgiveness, you, the borrower, must spend the loaned funds within the eight weeks measured from the loan disbursement date.

If you have questions regarding the PPP or Enhancement Act, feel free to reach out to Attorney Matthew Marcellino at (704) 919-1519 or matt@yourncattorney.com.

These materials are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem.