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Understanding The Reopening Of The Paycheck Protection Program

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The Treasury Department has reopened the Paycheck Protection Program (PPP). Following are the new guidance on the small business forgivable loan program. As reported by Forbes Advisor Robin Saks Frankel, the new terms aim to quell the earlier criticisms of the relief effort. Some 5,400 businesses have received about $520 billion to date. However, little of the funding reached black business owners. This is largely due to built-in structural limitations, such as stipulations around minimum headcounts and revenue requirements. 

Moreover, black businesses are being disproportionately affected by the global pandemic. 

  • In entrepreneurship, black women are more likely to cite access to credit, inadequate funding, denied loans, and higher interest rates as a challenge. 
  • Black business owners who apply for funding have a rejection rate three times higher than that of their white counterparts. 
  • Many black-owned businesses are in industries that have been severely affected by the pandemic, including leisure, hospitality, transportation, and retail. 

Brett Hickey is the founder and CEO of Star Mountain Capital. Hickey has been structuring, analyzing, and managing private equity investment funds for over a decade. Below Hickey answers questions surrounding forgiveness eligibility and complaints that the smallest businesses were unable to gain access to much-needed support. 

Paycheck Protection Program loan forgiveness  

There are three key requirements for PPP loan forgiveness.  

  • First is that the business needs to maintain similar employee and compensation levels after the loan is received.  
  • The second is that the loan proceeds have to be spent on payroll costs and a list of other eligible expenses. 
  • Lastly, at least 60% of the proceeds need to be used for payroll costs.  

Business owners can apply for forgiveness once all loan proceeds have been used. Hence, borrowers should be aware that there is a time limit for submission of the loan forgiveness application and be careful to maintain appropriate supporting documentation.  

More details are available here. 

Difference between the first and second round of the PPP 

One key difference is that businesses applying for the first time don’t have to prove a 25% reduction in revenues. Another is the maximum number of employees allowed for eligibility. Also, first-round borrowers can still have up to 500 employees, but they’ve reduced the number to 300 employees for second-round applicants, making the second round a bit more stringent. 

If a business owner didn’t apply for the 1st round of the PPP, can they apply for the 2nd round? 

Yes, the SBA reopened its PPP application process in mid-January. The program is available both to new borrowers and companies that took out a PPP loan the first time around. So, this is a positive development as we think it’s important for the government to continue to support eligible businesses through this difficult and unanticipated period. Therefore, companies that have not applied before will be subject to the program’s original eligibility rules. 

Qualifications for a second Paycheck Protection Program loan 

Primarily any non-public company with no more than 300 employees had at least a 25% reduction in revenues in 2020 compared to a specified prior period, typically equivalent quarters between 2020 and 2019. In addition, second draw borrowers need to have used the full amount of their first draw PPP loan on eligible expenses on or before the expected date of the new loan.  

Where to apply? 

Lastly, when businesses need to obtain their loan through a PPP program lender. An option is to use the Lender Match tool that the SBA has on its website. 

Read more about the reopening of the Paycheck Protection Program on Forbes. 


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