Some small businesses that need support are not eligible for the second round of Paycheck Protection Program (PPP) loans. The U.S. Small Business Administration (SBA) is responsible for the distribution of PPP loans. Even though the Biden administration has taken steps to make the application process more equal, many businesses are still falling through the gaps.
25% revenue reduction requirement
While the PPP loan program changes have made it more accessible to smaller businesses and BIPOC owners, the 25% revenue reduction requirement still excludes many in need of COVID-19 relief. What is that? The 25% revenue reduction requirement means that your revenue must have dropped by at least 25% in 2020 compared to your revenue from 2019. Though at first glance, this might seem like a straightforward way to gauge if a business requires financial assistance, upon closer examination, several issues appear.
Rising business costs, stable revenue and lower profits
COVID-19 has resulted in higher operating costs for many small businesses, from PPE gear to rising postage to the need to purchase outdoor dining equipment. But thanks to these additional costs, businesses could remain open and serve customers; they’ve maintained a steadier revenue. But the caveat to these additional costs is that these same businesses are not generating a profit. Thus, the 25% revenue requirement prevents many in need of assistance from receiving PPP loans.
Slow loan forgiveness
The other main hurdle for entrepreneurs applying for the second round of PPP loans is that they are still waiting for loan forgiveness from the first round. This drawn-out timeline causes both small businesses and banks to hesitate on the second round of PPP loans. Unfortunately, banks and lenders tend to prioritize new loans over loan forgiveness; they’re reluctant to approve a second PPP loan from a business owner who is still waiting for loan forgiveness from the first round. At this point, only 31% of PPP loans from the first round have been forgiven.
Have you been affected by PPP? Let us know in the comments.