With the aim of putting its own stamp on the Paycheck protection program, the government of Biden on Monday abruptly changed important program rules in ways intended to help the smallest and most needy businesses, which sometimes struggled to get help from the federal aid agency. to obtain.
But the changes could lead to a turbulent last-minute move by banks and other credit providers. With just five weeks to go before March 31, when the latest iteration of the program is due to end, lenders have been left scrambling to adjust to new rules that will only be explained to them later this month.
The changes include a new way to calculate loans for self-employed people and an exclusive 14-day window for applications from businesses with less than 20 employees. The adjustments are intended to increase aid to the smallest businesses, many of which are run by women, blacks and members of other minority groups and have so far received an exorbitantly small share of the aid money.
“Getting our economy back means bringing back small businesses,” he said. Biden said Monday afternoon in a brief remark. The changes, he said, “will bring much-needed, long-overdue assistance to small businesses that really need help to stay open, keep jobs and assert themselves.”
The Paycheck protection program was a signature of the Trump administration and disbursed $ 523 billion in forgiving loans to small businesses last year. However, the program has been criticized for its haphazard rules and hasty implementation, which often means that the most established and well-connected small businesses – including law firms, political lobbyists and companies backed by private equity investors – have obtained loans, while more vulnerable businesses struggled.
In December, Congress made $ 284 billion in new funding available to restart the program. The small business administration, which runs it, began approving applications in the heyday of the Trump administration last month. So far this year, about $ 140 billion has been distributed to 1.9 million businesses.
But with a wide range of eligible businesses – from self-employed to 500 employees – there is a big difference in the way they get loans. One-man operations, such as sole proprietorships and independent contractors, were particularly difficult. And those who succeeded often received small amounts – up to $ 1.
To help these businesses, Biden’s administration is reviewing the way their loans are calculated. Previously, their loans were based on the profit they reported on their annual tax. This disqualified unprofitable businesses – a restriction that did not apply to larger businesses – and limited the size of loans available to business owners, who tried to report as little taxable income as possible (as most businesses do ).
Loans for sole proprietorships are now rather based on gross income, an amount that excludes many expenses. This will enable unprofitable businesses to qualify and enable many applicants to collect much larger loans.
But borrowers do not yet have details on how to process the change, which according to officials from the Small Business Administration will take place early next month. This leaves them stuck: should their lenders seeking loans now be instructed to interrupt their applications and hold out larger loans? And what happens to those who have already received loans but would now be eligible for larger loans?
Rohit Arora, CEO of Biz2Credit, the program’s largest credit provider this year, sighed deeply when confronted with the questions. “We just do not know now,” he said.
More than 100,000 of the 140,000 loans his company made this year went to sole proprietorships. He is afraid of the reaction of those who have already received loans.
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“Customers will be very, very upset, and everyone will call us about it,” he said. Arora said.
The customers have no luck: the SBA will not change repayable loans with retroactive effect, and it will not allow those who already have loans to repay and reapply, according to an official of the agency who is familiar with the plan, and who was not authorized to speak. in public.
Even the credit providers who expect their customers to benefit were very happy about another regular smooth refurbishment. Randell Leach, CEO of Beneficial State Bank in Oakland, California, said it’s frustrating when lenders try to help lenders understand their options, but only to keep them moving.
“We will get as much access to people as possible, but constant changes really complicate the delivery,” he said.
The 14-day freezing point for larger businesses has also left borrowers worried.
Businesses with fewer than 10 employees raised 80 percent of the loans taken out this year and received a total of $ 42 billion in loans – about 30 percent of the money the program distributed. More than half of the funding allocated by Congress remains available.
The bigger challenge, according to borrowers, was a plethora of errors that prevented applications from going through new, stricter fraud controls instituted by the Small Business Administration. These checks disqualify some applicants incorrectly and expose errors that slipped unnoticed last year. Both problems require time-consuming intervention.
“This two-week window will not fundamentally change the roadblocks that businesses are experiencing,” said Richard Hunt, CEO of the Consumer Bankers Association. “It’s like giving everyone a train ticket on an unfinished railway.”
There were three other notable changes. Those with recent offenses not linked to fraud can now apply, as can those who are guilty of federal student loan credits or not. The agency has also updated its guidelines to clarify that business owners who are not citizens of the United States but who are legal residents are eligible for loans.
Biden administration officials addressed the changes as a response to long-standing differences in the types of companies that applied for and received loans – and a specific response to complaints by groups representing black, Hispanic and other colored business owners.
Officials said the two-week hiatus would focus government officials, credit providers and other stakeholders solely on reaching out to the kind of companies that do not have a relationship with banks or Washington lobbyists and who may not be aware of the ability to apply for the loans. . One senior official of the administration, who was not authorized to run for Mr. Asking to talk about the topic, said the purpose of the break was to get everyone to focus on these types of businesses.
The White House remains confident that the program will have a significant amount of money for other loans once the two-week period ends. Mr. Biden and his team did not call on Congress to withdraw the March 31 deadline.
Small business advocacy groups have praised the changes. Shaundell Newsome, co-chair of Small Business for America’s Future, calls them “a victory for America’s smallest businesses and those owned by people of color, too many of whom have been left behind by ill-considered rules that favor larger businesses.” ‘
Daniel Betancourt, CEO of Community First Fund in Lancaster, PA, who works on loans for about 300 companies, most of which are minority businesses, was also enthusiastic. But Mr. Betancourt wants the March 31 deadline to push back at least 60 days.
“We need time to let owners of historic rights know what is available now,” he said.
For one-man businesses like Elisha Trice that have been marred by delays, the formula change is a silver lining for a painful process.
Mr. Trice, an independent Florida gaming contractor, obtained a $ 2,000 loan last year and applied for a second loan last month. His application has been stuck for weeks, and now he can postpone it until the new formula takes effect.
Mr. Trice, who lost his job at the start of the pandemic and relied on his freelance work to support himself and his daughter, said the change could mean his next loan is more than $ 7,000.
“The fact that I will be able to get more this time is incredible,” he said.