WORTHINGTON — There’s still plenty of time to apply for the second round of the Paycheck Protection Program (PPP), and regional businesses are being encouraged to learn how the U.S. Small Business Administration-backed loans could benefit them.
FIrst State Bank Southwest President Mark Vis explained Monday that the program had been set to expire March 31, but has been extended to May 31. That change allows small business owners affected by the COVID-19 pandemic additional opportunities to apply for loans.
Vis noted that the latest PPP round began Jan. 15 with $285 billion of funding available. Probably the biggest difference between the first round, which provided $522 billion in forgivable loans over five months before it stopped accepting applications in August 2020, and the current one, which has $73 billion still available, is that small businesses have been specifically targeted this time around. Sole proprietors, independent contractors and self-employed individuals will receive more financial support this time, thanks to revisions in the PPP funding formula.
“This one is different in that you’re only eligible to apply if you have under 300 employees,” added Brad Meester, who serves as vice president for ag and commercial lending at First State Bank Southwest. “The qualifications also changed with the second round, with applications now based on gross income instead of net income.”
“We’ve seen an uptick in applications, with 50 percent more this year than last year,” Vis said. “We’ve had 200 more loan applications this round than last year.”
Many revisions have been made in the administration of PPP over the last several months, thanks in part to efforts of the Independent Community Bankers Association.
“A lot of the different banks that are doing the applications are the small community banks, and most of them are members of the ICBA,” Meester said. “The ICBA has been a huge advocate of making changes to the program and a really key support tool for the program.”
Though the PPP is a loan, its terms and conditions have also changed over time, Vis explained. PPP was initially set up for repayment over two years at an interest rate of 1%, and is now set at five years at 1%. Vis said, however, that nearly all employers are receiving full forgiveness on PPP, with the only exceptions being if the business closes too soon after receiving the loan proceeds or if it significantly reduces its employees.
During the first round of PPP, Meester noted that 90 percent or more of applicants had their loans forgiven. PPP applicants at First State Bank Southwest don’t have to be customers there (though it’s encouraged), and those still wishing to apply there should bring a copy of their 2019 and (if possible) 2020 tax returns so staff can determine qualifications.
“We’ve had a lot of customers come in and be surprised at how easy this process is,” said Annika Henckel, a loan officer at First State Bank Southwest’s Pipestone branch. “I think our bank’s reaching out and contacting people that we believe could benefit and helping them understand the program is really key.”
Many daycare providers, hairstylists and self-employed contractors often think they do not qualify since they do not have any employees. The truth is they also qualify for a PPP loan.
PPP applications are usually submitted to the SBA on the same day they’re filled out, and the approval process is typically two to three days. That quick turnaround means a quick influx to small business owners who may truly need it.
“If it's a $2,000 loan, it may not seem like that much, but for that particular borrower it certainly is, said Brad Bruxvoort, market president and chief credit officer in First State Bank Southwest’s Edgerton office. ”We've had some loans of less than $1,000, and they can be so important for that particular borrower — and that money then heads back into our community.”
Vis said that First State Bank Southwest distributed $17 million on 400 PPP loans during the 2020 round (an average of $42,500 per loan), compared to $13 million on 600 loans (about $21,667 per loan) thus far this round. This helps demonstrate that small businesses need PPP just as much, or perhaps even more, then businesses that have 300 or more employees.
According to the SBA, a total of $734 billion has been distributed via PPP in 2020 and 2021 as of March 28. First State Bank Southwest, as well as other community banks, often have the local resources possible to help borrowers complete applications during what are normally off hours.
For Vis, it’s all about keeping the local and area economy healthy.
“We think it’s important to keep doing it (PPP) as long as funds are available,” he said. “It means there’s more money to spend in our local communities. And, if we can help a couple of businesses survive, then we feel like we’ve done our job.”
More information about PPP, including links to participating lenders across the U.S., can be found here.