December 31, 2020 Atlanta - Eric Alimena, CEO of Alimena Limousine & Worldwide Transportation, walks past buses parked at his company on Thursday, December 31, 2020. (Hyosub Shin / Hyosub.Shin@ajc.com)
Credit: HYOSUB SHIN / AJC
Credit: HYOSUB SHIN / AJC
Those changes should make it easier for business owners to apply for a PPP loan, and they should get money quicker this time, said Tyler Eck of the Community Bankers Association of Georgia.
“Loans were taking forever to get approved,” he said. “They’re going to get rid of a lot of extra paperwork.”
John McNair, CEO of Community Bankers Association of Georgia, said the second round of federal COVID-19 relief loans are needed to help businesses that are still struggling due to the pandemic. Photo taken December 2020. (Handout)
There should be plenty of demand for the $284 billion available in the new phase, said Molly Day, vice president of public affairs at the National Small Business Association.
“Small businesses have had nine months of belt tightening,” she said. “We’ve had more businesses forced to close, and schools are closing. The outlook is pretty dim.”
Alimena got a PPP loan in the first round. But many small businesses can get a second PPP loan, even if their first PPP loan is still active.
Some business owners, in an abundance of caution, didn’t take out enough money the first time around and still need help with cash flow, said Brian Albrecht, CEO of Credit Union of Georgia in Woodstock, which originated $9 million of PPP loans this spring.
Congress wants “to get money to people who have truly been negatively impacted by the coronavirus,” he said. “We’re already had people calling us about the second phase.”
Lawmakers set limits to prevent big companies from gobbling up all the money. To qualify, businesses can have no more than 300 employees, down from 500 workers in the first round, and must have experienced a drop in revenue of at least 25% in any quarter of 2020 compared to a year earlier.
The new phase also reduces the maximum loan size to $2 million from $10 million. Many bigger companies won’t think it’s worth their time to apply for a loan of $2 million or less, Day said.
The legislation also earmarks $15 billion for loans distributed by small community banks and financial institutions controlled by people of color. Those lenders focus almost exclusively on the smallest businesses, said John McNair, CEO of the Community Bankers Association of Georgia.
“The big banks took up the lion’s share of the early round of funding,” he said.
Congress also approved changes to encourage more lenders to participate in the program, McNair said. Many banks were reluctant to make PPP loans because they feared they’d be stuck holding the bag if loans went bad.
The Small Business Administration will guarantee 90% of the new loans, up from 75%. A private lender will be responsible for only $100,000 if a borrower defaults on a $1 million loan.
“This is going to help make lenders more confident to make these loans,” McNair said.
Finally, small businesses can deduct from their taxes any qualified expense funded by PPP loan proceeds. That was not allowed in the first round.
“We wanted these to be tax-free loans, and now they will be,” Day said.
Fraud was a major problem during the first round of PPP loans, according to lenders, borrowers and industry experts. Day said that regulators will provide detailed guidance early next year on how to prevent fraud in this round of PPP.
In the meantime, business owners like Alimena hope that a second influx of money can help their companies hang on for just a bit longer.
“We used to have corporate groups come in and reserve vans for sales meetings, conferences and events,” he said. “We basically don’t have any of that now.”