PPP’s extension gave borrowers needed time to apply, funds expected to dry up before end date

An extension to the Paycheck Protection Program (PPP) from March to May allowed more time for small firms and businesses looking to draw from the program for a second time to benefit from it. But without additional funds, the program is expected to dry up soon.

The newest wave of PPP loans began early this year and was signed into law by President Trump in December.

The third round of the program allowed businesses to apply for a second PPP loan if they had 300 or fewer employees, demonstrated a drop in revenue for one calendar quarter compared to the previous year, and showed they used all of their first-round money.

Late last February, the Biden administration revised PPP small business loans to reach smaller, minority-owned firms. However, the federal business loan program was scheduled to end just a month after businesses had a chance to cash in on the significant increase in funds they would receive.

It also gave businesses who were unable to apply for the first round of loans a chance to do so, but because of an eight-week hold on applying for a second round, many of those businesses would have been unable to apply for their second round by the March end date.

Biden signed the PPP Extension Act of 2021 in late March, allowing borrowers to continue to apply for PPP loans until May 31. At the time the act was signed, the Small Business Administration (SBA) had already approved nearly $196 billion out of the $290 billion in funds set aside for the program.

Between businesses applying for their second loan at a max of $2 million and small businesses now borrowing against their gross income rather than their net profit thanks to the new PPP rules approved by the Biden administration, the program is expected to be out of money weeks before the new deadline.

“For the last month and a half the burn rate has been $10 billion a week,” said David Patti, director of communications and marketing at Chester County-based Customers Bank. “The guy who could qualify for $1,000 now qualified for $10,000. That unleashed pent-up demand and there are now a lot more people in line.”

As of April 26, the SBA reported having $18.5 billion left in its PPP loan pool, according to Patti.

Despite the swiftly dwindling funds, the extension has proven to be beneficial for borrowers newly eligible for the program, said Jeramy Culler, vice president and business banking manager at F&M Trust in Chambersburg.

“The changes were made late in this round of the program, and the additional time allows borrowers who were previously ineligible to compile their information and submit applications,” said Culler. “It also provides additional time for those borrowers who didn’t receive a first-draw loan until 2021 to meet the use of funds criteria for a second-round loan. I expect there to be continued interest from borrowers until the money is exhausted or May 31, whichever comes first.”

Banks also had more time and resources to manage the loan applications coming in from borrowers since the first wave of PPP was already behind them.

Last year, lenders had two weeks to prepare for the bevy of borrowers that would knock on their doors. This year, banks were able to take advantage of their experience from 2020, said Matthew Long, chief operating officer of Ephrata National Bank.

“That was in the height of COVID. We weren’t sure what to do from an employment perspective,” he said. “We did a very manual labor-intensive process to do it quickly. As we looked at this further and moved into the second wave, we took advantage of tech because we had more time on our side to reevaluate.”

Recently the SBA launched a new round of Economic Injury Disaster Loan assistance to provide $5 billion in additional assistance to small businesses and nonprofit organizations impacted by the pandemic.

This and other programs such as the $28.6 billion Restaurant Revitalization Fund are part of more targeted aid for businesses compared to the broader PPP, which could help lift up businesses hit hardest by the past year, said Patti.

“The Biden administration thinks it’s time to focus on hotels, restaurants and others and that’s all fair to now say ‘Let’s get help to the people who have lingering problems or problems unique to their sector and be much more tailored to their policy,’” he said.