When the Paycheck Protection Program (PPP) was introduced in spring 2020, it was difficult to apply for a first loan. And “scramble” is actually putting it lightly. Initially, countless small businesses were left out of the program when requests reached a volume the banks could not handle.
Fortunately, many businesses ended up getting their loans and used the money to cover their payroll and operating expenses. And now, thanks to the coronavirus relief plan signed at the end of December, there is a second round of PPP funding up for grabs, albeit with more stringent requirements than the first round.
Small businesses need more help
The Small Business Administration (SBA) has approved more than 400,000 repayable PPP loans for a total of approximately $ 35 billion. Still, some second-round candidates are rejected out of hand, and we can thank the broken software for that.
Given the chaotic nature of the first round of PPP loan applications, the SBA aimed to facilitate the flow of second round applications. To facilitate this, it has implemented a new automated approval system that includes additional verification checks to prevent fraud. Unlike the first PPP cycle, where lenders had to submit borrower data and then wait for the SBA to approve or deny a loan, the new automated system is designed to provide a response in just one to three days.
The problem? This system spits out certain applications and automatically rejects them.
Requirements for a second round PPP loan
Not all businesses that qualify for a first PPP loan will be eligible for a second. To get a follow-up loan, your business must first have used up its initial funds and have fewer than 300 employees (versus the 500 employee threshold that applied in the first round). In addition, eligibility is dependent on having experienced a 25% loss of income in an individual quarter of 2020.
PPP loans are forgivable if 60% of their proceeds are used to cover salary expenses. The remaining 40% can be used for other business expenses, such as rent.
What to do if your PPP loan application is rejected
If you’ve been turned down for a second PPP loan but are sure you meet the criteria, the best thing to do is to contact your bank to see what happened. If the error boils down to a computer problem on the part of the SBA, your bank may work with the SBA to resolve the issues.
Having said that, you might not get a resolution right away given the volume of loan applications the banks are processing. And unfortunately, the SBA has no plans to do away with its new automated system. While he can – and should – polish his software, he is also committed to nipping fraud in the bud for this second round of loans. As such, its tools can err on the side of aggression, and so second-round loan delays can be something small business owners just have to deal with in the short term.
The biggest problem, of course, is resolving baseless loan refusals before the second round of PPP funding runs out of money. Considering the number of applicants who were excluded when the program opened, this is a very valid concern – and one for which the SBA does not have an immediate response.