With the news that another round of $284 billion in Paycheck Protection Program (PPP) funding has been re-authorized in the recent stimulus bill, it’s only a short matter of time before the funds begin to roll out. More specifically, the new bill places the Small Business Administration (SBA) in a position where all required regulations must be enacted within 10 days. For many, this rush may be reminiscent of the initial distribution. Whether your scenario went smoothly or not will likely shape your view of this next round, but there are several aspects to consider.
At the beginning, the mass amount of PPP loans was an entirely new process, and it was implemented in such a short period of time. Because of this, the previous rounds have seen a number of obstacles and uncertainty. With everything we’ve learned, what are the factors that held back the program in recent months and how will this round be different?
When Congress passed the CARES Act creating the PPP on March 27th, the SBA was tasked with getting the plan out the door. Something that typically takes several months for rules and regulations to be written had to be finished the following week. The entire scenario, much like 2020 itself, was completely unprecedented. The result of this was that changes needed to be made on the spot as the situation evolved.
“As challenges were happening there were changes being made,” said Eric Ness, director of SBA’s Wisconsin district. “The [PPP loan] percentage that went to payroll went down a little bit so you could utilize more for other expenses, and the length of time that [funds could be used increased with the PPP Flexibility Act in June]. That’s where it’s necessary for organizations like WBA to communicate what worked and what didn’t work, so when Congress is working on their new bill, they can use that information.”
Ness looked back on the many phone calls between he and Wisconsin Bankers Association President and CEO Rose Oswald Poels as they worked through a better understanding of PPP’s complexities. Among these conversations, forgiveness seemed to be a key talking point in assuring that funding goes better than last time.
“There needs to be clarity around forgiveness this time around,” said Oswald Poels. “If the business owner doesn’t understand the terms of it from the time of application, they are going to be very reluctant to apply.”
This point on borrower discretion is one that could very likely concern borrowers into thinking they’ll accrue debt rather than gain assistance. Transparency and consistency will be two critical elements of the next round, and the SBA is certain they can provide this after the necessary time it took to adapt.
“The SBA has been around for 67 years, and our programs have been fairly static with incremental changes over the years,” said Ness. “To build a brand-new program that no one understood and get that up and running in one week was monumental. We were flying the plane and building at the same time. As we found out that things didn’t work the way they should have or they needed some fine-tuning, we changed them—or Congress did. Having gone through that process, we will be in a much better place.”
It already seems that the situation is shaping out to be clearer than before. According to the proposed relief plan, $284 billion will be designated to forgivable PPP loan funds. This will be for some businesses that have already received loans during a previous round of PPP as well as other businesses that may have missed out. A total of $20 billion in grants (advances) will also be available for businesses in low-income communities through the Economic Injury Disaster Loan (EIDL) program. Going forward, it will simply be a matter of sticking with what has been clarified, and Ness believes that the problems faced last time will help to assure this round is significantly more stable.
“Clearly the first time it was hectic and at that point we were working days and nights,” Ness added. “During the second round we were busy but the process fell into line, and my hope is that as we move forward, that trend will continue.”
The plans surrounding PPP loans were not the only thing undergoing changes through the process. Due to the surge in demand for loans, the SBA’s electronic loan processing service, E-Tran, faced problems as well.
“The first round was really barred by technology issues,” said American Bank President and CEO John Oathout. “When the money got released and it was a frenzy to get the loans applications in, we all maxed out the capacity of SBA’s system and had trouble getting the applications in.”
The constant regulatory changes and technological updates were more difficult for some than others. But with these dilemmas came solutions, and that is what needs to be apparent as businesses begin applying for another round of PPP loans.
“The problems have really stemmed from an operational standpoint,” said Oswald Poels. “Some of it related to clarity. But I think the SBA can get prepared for this next round leveraging the lessons they’ve learned over the last nine months.”
Oathout agreed that with the lessons learned through the process, there is a much better chance that a new round of PPP funding will go smoother. He added that while he’s optimistic, it’s important to not expect perfection.
“SBA has done a much better job with their technology, so I think the next round will go a lot better,” Oathout said. “Will there still be some issues? Probably. I don’t think the system is really built to handle the quantity that’s going into it, but I’m hopeful that they’ve put the money and resources into their technology just like us banks have done to make this go better.”
To accommodate for the unforeseeable rise in user traffic, E-Tran underwent several updates. This included launching a new search functionality within the E-Tran Servicing section of the Capital Access Financial System (CAFS) to help PPP lenders review loans in their portfolios. They also changed the way PPP loan data is received from lenders, noting that the type of business will determine whether an SSN or EIN should be used to submit a loan application.
“There were changes made to E-Tran as this was all happening,” said Shirah Apple, public affairs specialist for the SBA’s Wisconsin district. “If there is a need for something to change moving forward, I don’t have a doubt that the change will be implemented."
As a result of the increase in traffic, additional access points were introduced through the loan process. The SBA worked to expand these access points by expanding the lenders who could work with these loans due to the increase in demand. This expansion included CDFIs, certified development companies, and microlenders.
“As we went through the process, a huge volume of loans slowed the system down,” Ness said. “We actually had to create a different process so that more lenders could have access. Going forward, those are in place for when another round rolls out.”
Depending on who you ask, the media attention throughout the loan process was either a blessing or a curse. The negative side of this attention deals with how public opinion has been shaped, whereas the positive focuses on awareness. Oathout believes that while much of the attention has not been ideal, the media actually has an opportunity to make things better this time around.
“The media has taken a bit of a negative connotation of PPP loans,” said Oathout. “They’ve been out searching for which firms have used them. I think what we can do is help people understand that these loans are great for America, and our friends and neighbors should endorse this so our small businesses can survive. The media really has a chance to help us with this whole thing.”
Ness believes that part of this has to do with the fact that the general public may not have received comprehensive information on the program; only so much can be explained in the news, and as many have come to know, the program is much more comprehensive than a few-minute broadcast can explain.
“A lot of [the negative coverage] had to do with the name of the program,” said Ness. “The name of it is the ‘Paycheck Protection Program.’ This process was all about making sure employees continued to be paid. Even though loans went to small businesses, the bulk of it went to payroll, and portions went to rental and other areas, but it was a focus on employees keeping their pay.”
“The media was very focused on the relief programs,” said Apple. “Because of the high interest– and thanks to places like the Wisconsin Bankers Association – when something wasn’t working, multiple sources were hearing about it. SBA and U.S. Department of the Treasury were writing rules based on what field offices like ours were hearing from small business owners, from the media, from partners, and from constituent relations staff in Congressional offices. This was all happening with extremely fast turnarounds, which is highly unusual.”
She credits this as part of the reason that the office's Twitter followers and newsletter subscribers have increased substantially; with so much going on, people are after credible information.
This immediate feedback allowed for the SBA to note what was working well and what changes needed to be made. Ness noted that with the urgency to make the program exist and get it off the ground, there were details that became better understood through trial and error. The media communication allowed for the knowledge of updates and reconsiderations to be suggested to Congress by the SBA. Despite what has circulated throughout the general public, Ness reiterated that the SBA is not involved in creating the program’s regulations.
“Congress writes the legislation; they determine the parameters of the program,” Ness said. “SBA has some power once they write the legislation to tweak certain things, and we did see between Treasury and SBA that they put certain rules into place after legislation was written to make things more easily understood, or to direct funds to minority business owners. In a way we’re all building the plane, but congress makes a lot of the calls and then SBA implements.”
What Should be Expected?
The main difference between this round and previous ones is that we now have a better understanding of what to expect. The overall hope is that the program is as clear as it can possibly be and that the changes stay at an absolute minimum.
Still, it doesn’t appear rational that this ride goes without a single bump in the road. Although much has been smoothed out, there is still the fact that the situation continues to evolve. The truth of the matter is, we have no idea what tomorrow will bring; there is the very real possibility that the program may need to reflect that.
“I think SBA was put in an unimaginable position of trying to interpret these rules and find something they can implement,” said Oathout. “The rules still aren’t perfected. After nine months I think they’re better. The banking organization has worked tirelessly with PPP, and I think ultimately that has helped us get to where we are today. While it’s not perfect, it’s workable. I ultimately think SBA is going to do a much better job with everything considered.”
Over the course of the last nine months, there has been ample time that has been dedicated to informing and training anyone in need of the information. The fact that this knowledge is already so widespread will be key to how the next round of loans will be handled.
“Throughout this whole process we’ve been doing webinars and training, especially for small business owners, partners, and lenders,” said Apple. “During the first three months of PPP we trained about 10,000 people through the Wisconsin SBA office with assistance from the Small Business Development Centers. Our job is to make sure the information is out there so people can become more familiar with it.”
And when it comes down to it, Ness was very clear when asked if the SBA, with all factors considered, is ready for the next round of PPP loans.
“We are prepared for any small business relief package that Congress chooses to pass and if we need to make changes to rise to the challenge, we will. We are ready to help small businesses continue with their recovery, and we are still helping small businesses start, grow, and expand despite the pandemic.”
WBA has worked constantly to make sure its membership received accurate and timely information during the first round of PPP loans and will remain in contact with the SBA to provide its membership with the most relevant information as it becomes available. A resource page is available here and will be updated regularly.