The Small Business Association’s first Payment Protection Program (PPP loan) was by all accounts a tremendous success, giving small businesses across America a much-needed infusion of cash that is forgivable as long as they continue to employ their workforce. But it was also a victim of its own success, running out of the $350 billion in funds in less than 14 days since applications were accepted.
Now, the government is getting ready to launch round two of the PPP loan, providing an additional $310 billion to banks to deliver to small businesses that apply for it. While it was a governmental decision to promote this program to provide relief, it was thanks to banks’ effective use of digital systems that allowed so many applications to be processed in an incredibly short amount of time. It’s very likely that the funds from this next round will be allocated just as quickly, if not more, than the initial one.
What are the terms of the next PPP loan round?
The new PPP bill, like its predecessor, will also fall under the CARES Act, which is a broader $2 trillion relief package. It will also be facilitated by the SBA, and will provide small businesses with loans that are equal to 2.5 times their monthly payroll expenses. Businesses that use the funds properly during an eight-week period following distribution and keep their employees’ jobs will enjoy a loan that’s entirely forgiven.
Small businesses compose 99.9% of companies in America, and almost half of the nation’s workforce is employed by a small business. This makes keeping these businesses afloat imperative for the economy as a whole and individual citizens.
The first round of the PPP approved 1.6 million loans, and funds were awarded on a first-come, first-serve basis. There was some speculation that not all businesses had equal access to this funding, and that larger companies that didn’t necessarily perfectly fit the criteria were disproportionately granted loans. There was also talk that larger banks received more funds to distribute. Whether or not these assessments are accurate, it’s likely we can expect round two of the PPP to more carefully vet who receives funding. It’s also likely that smaller community banks will receive more funds this time around. In fact, there is speculation that businesses that wish to increase their chances of their application getting approved should go through a local bank.
One thing is for certain, though: round two of the PPP is likely to see tremendous demand. The first round exhausted its funds before many small businesses could apply or receive funds. This time, we can expect those businesses to rush to be among the first to apply.
Funds will deplete just as quickly this time
The move to encourage community banks to disburse funds will likely give mom-and-pop businesses a leg up –– though it’s inevitable that the extraordinary demand for what is essentially free money will exceed the supply of funds.
One reason for this is that small businesses have been hit particularly hard by the coronavirus crisis. They aren’t sitting on the hefty funds that corporations have, and their business model frequently relies on face-to-face interaction. Many are paying rent for commercial space that isn’t being used, have expensive supplies that are being wasted, and are struggling to transition to a remote model of selling and servicing. These loans are literally a lifeline for such businesses, who are scrambling to get their hands on them to avoid layoffs or even bankruptcy.
Another reason for the inevitability of round two’s quick depletion is that banks have successfully made the switch to digital systems. Even banks that previously relied on manual paperwork and outdated systems and channels managed to deploy funds in record time thanks to rapid technological adoption. As we enter into round two of the PPP, any prior kinks have been sorted out, and banks are even more prepared than before to efficiently handle the mass influx of loan applications.
Technology is the backbone of PPP-distributing banks
Banks have truly risen to the occasion during the coronavirus crisis, moving swiftly from semi-digital processes to digital-first processes in order to service customers. Funds must be distributed quickly to keep America’s small businesses alive during and after the crisis. Just as small businesses are the backbone of the nation, technology is the backbone of the banks who are helping these businesses during their moment of greatest need.
Lightico’s banking clients have been successfully distributing funds from the PPP through digital solutions such as integrated eForms, eSignatures, and document collection. They were particularly well-equipped to quickly and securely process PPP loans because they already had remote-first tools in place. For example, Happy State Bank, a Texas regional bank was able to digitize and process thousands of loans in just a couple of days.
“Our primary focus is to take care of our customers first,” said Mark Murray, Vice President of Business Systems at Happy State Bank. “During this (COVID-19) pandemic, we at Happy Bank are taking a hard look at all our tools to see how we can use them to better service our customers. Lightico is a tool that has been very valuable and the team is proving that they are a true partner.”
As the next round of the PPP fast approaches, we are honored to be part of the solution that enables banks to quickly serve small businesses across the country.