By Justin Biel, trends editor at Grow Wire
⏰ 5-minute read
Since the federal government allocated $349 billion in small-business loans under the Paycheck Protection Program (PPP), the program has been marked by controversy.
While the PPP was intended to provide a crucial boost to the 30 million small businesses in the U.S., it reached less than 5% of them before running out of funds on April 16. Among the problems: general delays and confusion, as well as (according to reports) banks prioritizing larger loans and big companies that also received millions of dollars in “small business” funds.
The Senate approved a $310 billion addition to the PPP on April 21, but the program is currently on pause. The Small Business Administration (SBA) reports it processed some 1.6 million PPP loan applications through nearly 5,000 lenders before the program ran out of money, at an average amount of $206,000, with 74% of them for $150,000 or less.
The upshot is that many small-business owners who applied for loans still haven’t gotten any. Questions abound regarding which businesses are actually getting these loans, and how.
We asked six small-business owners about their experiences applying for PPP loans. Their responses can help guide you through the application process, whether you’ve started it or not.
Have you received funding from the PPP?
Of the businesses we spoke to, only one – Kit Lender, an outdoor apparel and equipment service company – had received PPP funds as of press time.
Kit Lender CEO Forrest Shinners, who applied through a Vermont branch of TD Bank, took the program’s first-come, first-serve structure seriously.
“I was on [the PPP] like a hawk,” Shinners said. “As soon as my bank said they could take applications – at 10 p.m. on April 5 – I had it in immediately.”
Many national banks continue to accept loan applications while the program awaits a fresh infusion of funds. Many news outlets report that small businesses have had the most success getting loans processed and funded after applying through regional or community banks vs. large ones.
Shinners said he is grateful for the financial support but added “if businesses and the economy aren't rolling again, this [loan] will only cover the eight-week period [of aid the program promises].”
Do you know anyone that has received funding?
Kyla Herbes, founder of home décor shop House of Hipsters, knows a business owner that received a loan, though she herself has not.
“I’ve had one interior design friend tell me she received the PPP money,” Herbes said.
None of the other founders we surveyed is in contact with another that received funding.
Business owner Kyla Herbes has a friend who received a PPP loan, though she hasn't.
How did you find the application process overall?
Generally, the founders we surveyed found the PPP application process difficult and riddled with uncertainty.
Gaby Diamond, the senior financial controller for fitness studio Fithouse, used the word “stressful” to describe it.
“A lot of the banks weren't sure when they were going to open up applications … and some changed their process partway through,” she said.
Upon the PPP’s launch on April 3, many national banks weren’t yet accepting applications, citing a lack of timely information from the government. After opening their online application portals, some banks tweaked restrictions about who could apply for loans and occasionally took their portals offline.
Founders also described an inability to get accurate status updates on the progress of their applications.
“I received a letter saying that my application was not complete and that the funds were all out,” said Rose Muniz, CEO of Fit Snack, a subscription-box snack service. “The strange thing was that I never received any notice that the application wasn't complete in the first place.”
Entrepreneur Rose Muniz was told the PPP was out of money with which to fulfill her loan applicaiton.
Meanwhile, Herbes received a call that her loan was approved, but she hasn’t received money nor heard anything since.
“I was told an underwriter would be handling my paperwork to finalize the loan process,” Herbes said. “Maybe I’ll receive funding … maybe I won’t.”
Katharine ReQua, founder of retail incubator For Now, ran into problems with her bank that halted the application process.
“Bank of America was saying even though we have an account with them … we were not eligible because we didn’t have a line of credit,” ReQua said. “So it was just a lot of red tape and … because we didn’t have debt, we were sort of being penalized by not having access to this federal program.”
Again, banks’ rules around who can apply for PPP loans vary, and some banks have changed their rules since they started accepting applications. Bank of America’s application page currently says that applicants “must have a Small Business lending and Small Business checking relationship with Bank of America as of February 15, 2020, or a Small Business checking account opened no later than February 15, 2020, and do not have a business credit or borrowing relationship with another bank.”
Katharine ReQua's (left) bank said her business wasn't eligible for a PPP loan under its standards.
What would you like to see moving forward?
PPP loans will be forgiven if borrowers keep all employees on payroll for eight weeks after receiving the loan. The loans cover up to 2.5 times of a business’s average monthly payroll costs in 2019, up to $10 million. No more than 25% of the forgivable loan amount can be attributable to non-payroll costs.
We asked entrepreneurs what they’d like to see in an ideal loan program. Herbes’s response dealt with the challenges of applying to the PPP as a self-employed individual.
“In the future, I’d love to see the government have some sort of emergency funding that in a scenario such as this, they can pay for, say, 50-60% of an income up to $X dollars,” she said.
Another response centered on the constraints of where and how PPP loans can be spent.
“I'd like to see a greater percent for non-payroll costs,” Shinners said. “It’s yet to be seen, but 25% covering non-payroll costs might not be enough.”
A final suggestion related to helping businesses understand their likelihood of receiving a loan.
Diamond suggested more information “about the back-end process once applications are submitted … There is no clarity.”
We’ll continue reporting on the Paycheck Protection Program as it evolves. To find other sources of financial aid in the meantime, we recommend consulting our rundown of resources, including loans and grants from state and city governments, nonprofits and private companies.