Accounting & Finance

PPP runs dry for small businesses, but thousands of applicants were left in the lurch

  • 3 min Read
  • May 31, 2021

Author

Escalon

Table of Contents

The unthinkable happened for some small business owners hoping to participate in the second round of the Paycheck Protection Program as the initiative abruptly closed ahead of schedule. Federal funds ran out weeks before its planned May 31 deadline, leaving lenders overwhelmed and millions of borrowers searching for help.


The PPP



The Paycheck Protection Program was established in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act. The program’s low-interest loans, issued by banks and other lenders and guaranteed by the Small Business Administration, were intended to help small businesses stay afloat amid the pandemic.



The PPP loans were meant to be forgiven, provided that recipients used the money to retain workers and on other permitted expenses.



The SBA had approved 11.6 million PPP loans totaling about $796 billion across its first April to August 2020 round to its second round, which began in January. The program was allocated another $292 billion by Congress earlier this year for round two.


Last-minute changes



  • In February, the Biden Administration introduced significant changes to the program:
  • A priority application window was established for the smallest businesses.
  • Participants in round one became eligible for round two.
  • $9 billion was earmarked for distribution through community financial institutions that focus on underserved communities.
  • The method for calculating the maximum PPP loan changed to using gross income as a stand-in for payroll costs for businesses and sole proprietors

The modifications were intended to broaden access to the PPP. But the changes became a source of frustration and confusion for borrowers and lenders, who struggled to keep up.


The crisis




The sudden shutdown of the PPP has thrown both banks and borrowers off guard. With no running update on remaining funds with the SBA, lenders kept unknowingly extending PPP loans at a blistering pace and borrowers continued applying after the money had already run dry.



Moreover, hundreds of lenders are frantically trying to find community financial institutions to take over applications for underserved communities. But because smaller community banks have more limited capacity, the fate of vulnerable groups that the last $9 billion of PPP was meant to serve is unclear.



Some borrowers, told they were eligible for higher loan amounts, returned their loans in order to reapply for the bigger loan amount, only to end up with nothing.



Banks and borrowers are calling for the government to add more funds to the PPP. But with Congress having already offered the program twice, further funding seems unlikely.


Other relief programs




With PPP no longer coming to the rescue, there are few other options that struggling small businesses at least in theory could consider. These include the SBA’s Restaurant Revitalization Fund, Shuttered Venue Operators Grant program and Economic Injury Disaster Loan program.



However, these programs focus only on particular sectors and reportedly also have insufficient funds to cover all eligible businesses. The $28 billion Restaurant Revitalization Fund program had more than 266,000 applicants in its earliest weeks.


The state of the PPP program now




The second round of relief is effectively frozen for hundreds of thousands of small businesses. The SBA will have roughly one month to process loan applications that were already submitted before the funding ran out on May 2.



The agency reported that in the second round, from Jan. 11 to May 2, it had approved more than 5.6 million PPP loans totaling more than $258 billion from Jan. 11 to May 2, when it ran out of money except for community banks. A Treasury Department estimate said the program had saved 19 million jobs, but economists will likely be scrutinizing this figure and the program’s true effects for years to come.

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

Accounting & Finance

Common Accounting Mistakes That Cost Medium-Sized Businesses Millions 

Accurate accounting is the bedrock of any successful business operation. Yet, medium-sized businesses—those that have grown beyond the small-business stage...

Read More
Taxes

1099 vs. W-2: How to Ensure Compliance and Reduce Risk 

Distinguishing between independent contractors (1099) and employees (W-2) is a pivotal compliance matter for U.S. businesses. Misclassification can result in...

Read More
Accounting & Finance

Capital Raising in Spring: How to Position Your Startup for Investor Interest

Spring symbolizes renewal, making it an apt metaphor for startups aiming to secure fresh capital to fuel their next growth...

Read More
uncategorized

Spring Clean Your Payroll: Essential HR Best Practices for Scaling Startups

Payroll is more than just issuing paychecks—it’s a complex, high-stakes process that can significantly impact employee satisfaction, legal compliance, and...

Read More
Accounting & Finance

How to Leverage Q2 Financial Data to Drive Startup Growth in the Second Half of the Year

For startups seeking sustainable growth, every quarter provides a treasure trove of data—but Q2 data can be particularly revealing. By...

Read More
Accounting & Finance

Q2 Business Planning: Adjusting Your Financial Strategy for the Rest of the Year

By the time Q2 rolls around, many startups have a clearer picture of their performance and market positioning compared to...

Read More
People Management & HR

5 Key HR Challenges to Address Before Summer to Keep Your Team Engaged

For many startups, the summer months can be a dual-edged sword. On one hand, warmer weather and looming vacations can...

Read More
Taxes

How to Maximize Your Tax Deductions: Essential Tips for Startups in Q2

Tax season often triggers stress and complexity—especially for startups laser-focused on building products, acquiring customers, and scaling operations. Yet savvy...

Read More
Startups

Mid-Year Financial Checkup: How to Assess and Adjust Your Startup’s Budget 

The halfway mark of any given year is more than just a date on the calendar; it’s a valuable checkpoint...

Read More