As we head into the July Fourth weekend, the Paycheck Protection Program Extension Act is on its way to President Trump’s desk for signature. This Act will extend the time small businesses and self-employed individuals have to file an application for a PPP loan to August 8, 2020.
However, while Congress congratulates itself on this latest legislation, many self-employed and minority small business owners are wondering if this extension will have a real impact. For a large number of this group, the PPP loan has been a source of frustration and anger. The process was complicated as banks were not forthcoming with information and appeared to prioritize their larger clients. Further, self-employed individuals had to wait a week longer to apply than small businesses. As one business owner pointed out, “As a sole proprietor, I wasn’t eligible until late in the game.”
As a result, many of the smaller businesses did not get access to PPP funds until the second round of funding. In fact, some potential borrowers bailed on the program before they got funding due to the challenges in the process. It seemed like there were a lot of roadblocks to success and Treasury and the Small Business Administration (SBA) did no favors to borrowers by releasing guidance very slowly.
“The lack of consistency from the government and the banks made this a very difficult process for the business owner on how to ensure that paperwork was sufficient to get them approved,” explains Eric Pierre, CPA and owner of Pierre Accounting in Southern California and Austin, Texas.
Getting access to loans was even more complicated for some groups of business owners with less access to banks. Minority business owners often do not have access to the same financing resources as other businesses.
“An additional challenge for the self-employed and minority business owners is that a lot of them didn’t keep good accounting and payroll records which made it harder for them and it also was frustrating for them to play catchup, particularly in the first round when the money was going so fast,” says Pierre.
But there is a reason that the 5-week extension might be a reason for hope for the self-employed and minority small business owners. Interestingly enough, that hope might be driven by how FinTech firms like PayPal
The Process and Players Improved
Part of the challenge with the initial roll out of PPP loans, was it was a plan rolled out very quickly by Treasury and the SBA. The roll out was so quick, that the banks were not ready for the inflow of applications coming their way. The process was confusing and opaque.
However, improvement to the program has happened quickly. First, through the roll out of FAQs, the process has become clearer. There are explicit instructions on what forms and calculations need to be submitted for a loan. Second, FinTech companies have decided to become leaders in the space and they do not want the bigger clients. Rather, they want to target the smaller loans.
One FinTech, Kabbage, was one of the biggest providers of PPP loans. Interestingly prior to the Covid-19 crisis, the company had never processed a loan for the SBA. Yet as the initial June 30th deadline of the PPP program passed Kabbage found that 93% of all of their applicants had 10 or fewer employees; 62% had one employee, and 58% were self-employed. Further, Kabbage’s total average loan size was $28,100 and 50% of all loans were under $13,500.
This is good news for minority businesses and self-employed individuals who now want to apply for PPP loans. The beauty of FinTech firms is that they are automated and do not require a banking relationship. They have been able to rework their websites so that the PPP loan process is user friendly. In many ways, FinTech is able to be nimble and that helps with a group who might not be well-served by the traditional lender.
Further, FinTechs understand that they need to be doing outreach to minority business owners to make sure their businesses survive. One example of how this has occurred is that Kabbage partnered with Sean “Diddy” Combs and his organization Our Fair Share that is doing outreach to black business owners to obtain PPP loans. By providing this outreach, the goal is to help provide greater support with growing minority businesses.
It Is Worth Applying
But despite this progress, the question remains whether minority small business owners and self-employed individuals feel the PPP loan is worth it.
“I would absolutely tell someone to apply,” says Pierre. “You should never give up on getting any funding for your business until the money runs out, especially with the level of economic uncertainty. Some economists are predicting this pandemic may impact our economy well into 2021.”
That is important for minority business owners and the self-employed. It is telling that Congress unanimously voted to extend this application date another 5 weeks. Clearly, the unknown economic environment means small businesses have an arduous journey ahead.