December 1, 2023

Small Business

Business Nes

Small business loan relaunch will target minority firms after backlash

4 min read

The Small Business Administration will give priority to minority-owned businesses that have struggled to obtain coronavirus aid when the agency relaunches its Paycheck Protection Program, according to newly released rules and guidelines.

a person taking a selfie in a room: Debbie Briano, a fourth-generation owner of Mexican restaurant, El Rancho Grande, works in her restaurant on Olvera Street in downtown Los Angeles, Wednesday, Dec. 16, 2020.

© Jae C. Hong/ AP Photo
Debbie Briano, a fourth-generation owner of Mexican restaurant, El Rancho Grande, works in her restaurant on Olvera Street in downtown Los Angeles, Wednesday, Dec. 16, 2020.

The SBA and the Treasury Department late Wednesday published guidance for how they will implement the next round of PPP loans, which Congress overhauled in the Covid-19 relief plan that became law last month. The program, which has $285 billion in new funding, allows businesses to convert the loans into grants if they agree to maintain payroll.


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Last year’s rollout of the program doled out $525 billion in loans to some 5 million borrowers, but it was marred by complaints that bigger, well-financed businesses such as Shake Shack and the Los Angeles Lakers were the first to benefit and that traditionally underserved communities were initially overlooked in the hurried launch.

Following a backlash over whether minority-owned businesses had sufficient access to the loans, the SBA issued specific guidelines for minority, veteran and women employers. Among the steps the agency plans to take is to accept PPP loan applications only from certain lenders that focus on underserved and minority businesses and borrowers in distressed areas for at least the first two days of the program. Congress set aside $40 billion for businesses with 10 or fewer employees and for loans under $250,000 in low-income areas.

Jeannine Jacokes, chief executive of the Community Development Bankers Association, said that staggering the launch was a good idea because of technology problems that dogged the program when it faced high demand last year. She said that in the early days of PPP it was a “mad dash” for people to apply for loans.

“There are a whole lot of businesses that are hurting,” Jacokes said earlier this week. “The whole first-come, first-serve thing — I hope they have a better way of managing that because I think that’s a lot of what created all the hysteria over PPP.”

The SBA has not said when it will begin taking applications that borrowers will submit through lenders, but sources closely following the rollout expect the restart to happen next week. The agency said it will continue setting aside dedicated hours to process and assist the smallest PPP lenders with their loans.

The program is aimed at small businesses with fewer than 500 employees, which have been especially hard hit by the coronavirus shutdowns, though larger restaurant and hotel groups can obtain the funds.

The SBA also released broader guidelines for how the new program will work based on a long list of revisions that Congress made last month, including changes to eligibility requirements. One of the most critical rules that the agency issued covers the new process in which PPP borrowers will be able to obtain second loans if they can demonstrate a 25 percent decline in gross receipts from any three-month period in 2020 versus a similar quarter in 2019. The so-called second draw loans are limited to employers with no more than 300 workers.

The SBA and Treasury said they will allow businesses seeking the second loans to cite annual revenue reductions of 25 percent or greater in 2020 compared to 2019 if they submit copies of annual tax forms showing the decline. The agencies said the allowance will be important for small borrowers that may not have quarterly revenue information readily available.

The agencies also further defined what counts toward gross receipts, which was left vague in the law. It will include all revenue in whatever form received or accrued from whatever source, including sales, interest, dividends and royalties. The calculation will not include any initial PPP loans that were forgiven in 2020 and contains a few other exceptions such as proceeds from transactions between business affiliates.

The SBA and Treasury also said lenders must confirm dollar amounts and percentages of borrower revenue reductions in a “good faith review” for second-draw PPP loans greater than $150,000 and that borrowers must submit documentation that may include tax forms or bank statements. For loans of $150,000 or less, the SBA and Treasury will not require the documentation to be submitted with the application but only later when the borrower applies for loan forgiveness.

The SBA has not released updated loan application forms for borrowers to fill out. Lenders are still waiting for details on how the SBA will revamp its loan processing systems for the updated program. The agency has told banks that it is considering significant technology changes for the new PPP.

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