For many in the distribution industry, the Payment Protection Program administered by the Small Business Administration was a lifeline to rescue them from the worst of the coronavirus-induced recession of 2020. One year on, the loans remain a valuable tool to help businesses navigate the continued challenges that have resulted from COVID-19.
In mid-March, the U.S. Senate followed the lead of the House of Representatives, extending the deadline through the end of May. The program had been scheduled to lapse at the end of March. This gives warehouse operators two additional months to get a first, or second, loan to help keep businesses operating smoothly as the pandemic, hopefully, recedes.
The PPP was created at the outset of the pandemic as part of the first COVID relief bill, and has been used extensively by all types of business, including service centers. “I think the program was very effective,” says Alex Cohen. “A lot of businesses that have had disruptions have utilized the program to cover expenses and keep employees on the payroll.”
Cohen is the CEO of Liberty SBF, a small business real estate lender that has specialized in helping customers access PPP loans. He encourages small business, such as service centers, to pursue second-draw loans if they qualify.
To qualify, a business must have seen a 25 percent drop in business between 2019 and 2020. Certainly, a lot of service centers would meet that number, particularly those supplying material to some of the harder-hit business segments.
Some changes have been made to the program since its rollout, in part to deal with issues that cropped up in the first installment. One major change, the loan forgiveness process, is particularly beneficial to smaller operations seeking loans of less than $150,000.
Cohen says the loan forgiveness process has been simplified and enhanced, with an emphasis on smoothing out the system for companies with lower revenue figures. “We’ve seen a decent amount of companies come to the table who had been somewhat apprehensive.”
On the other hand, the approval process has been lengthened, in part to crack down on some of the fraud that, sadly, was inevitable when so much money is being spread around. Companies such as Liberty are helping the SBA and Inspector General root out the fraud. “It’s a pretty collaborative effort between the lenders and the feds.”
But, as is usually the case, the measures to crack down will be felt by the honest participants as well. Previously, the loan had used “straight-through” processing, which gave immediate word on acceptance or decline following submission of the API to a tech platform. Now, as part of its efforts, the SBA has introduced a human element to better find the cheats, but will unavoidably slow down the process.
Still, the borrower can take steps to ensure the quickest possible turnaround. It starts with having all of the right documentation on hand when the application is being started. If an applicant has everything he or she needs, then the submission process can be over in less than half an hour.
From there, it may take anywhere from five to 10 days to have access to the funding.
Obviously, not all applications are approved, for a variety of reasons. If a submission receives a “hold error,” the applicant must proactively address the questions being raised by the SBA.
Cohen understands the frustration that would arise after an applicant has seemingly provided everything that had been asked for, only to be told by the SBA the application was denied. “Unfortunately, good, bad or indifferent, that has nothing to do with the lender. There’s no way of circumventing the process,” Cohen says. “What we’re finding is the majority of our borrowers that have their stuff in order are getting through the process in seven days.”
While described as a loan, most users think of it as more of a grant, given the debt is forgiven if the conditions for its use are met. Still, the financial implications require some careful consideration.
“When you get the loan up front, the first eight weeks are the covered period before you can apply for forgiveness. During that time and after until you are forgiven, this is treated as a loan on your balance sheet so you’re carrying a liability,” Cohen explains. “So if you’re looking for a line of credit, if you’re looking to sell your business or purchasing capital assets, it’s a liability.”