Bankers Expect Plenty of Demand for New Round of PPP Funds

YOUNGSTOWN, Ohio – With the new round of the Paycheck Protection Program set to begin this week, area bankers are expecting plenty of applications for funds.

“When it comes to free money, I don’t think any sort of fatigue has set in and borrowers are going to explore it,” says Tim Shaffer, chief lending officer at Farmers National Bank.  “We are expecting there to be interest and we’ve already heard from customers, just in general conversations.” 

While the premise of the program this time around is largely the same, there are key differences. The maximum loan amount for second-time borrowers has been reduced to $2 million. Businesses that received a PPP loan in the first round can apply for a second loan, provided that they exhausted funds from their first loan, employ fewer than 300 and can show a 25% drop year-over-year in gross receipts for at least one quarter of 2020.

Businesses that did not get a PPP loan the first time around are still eligible for a loan up to $10 million.

“We’re not expecting many, if any, of those,” says Josh Toot, Premier Bank’s commercial banking manager. “The amount being lowered means the funds should certainly be there. That $2 million is a much lower amount, so I think you’re going to see smaller loans [overall], which means people won’t have to rush to the bank and be first in line.”

Also helping, he adds, are statements from SBA and Treasury officials that indicate the agencies don’t expect the $284 billion pool to run out in this round of funding.

“I don’t think it’ll be a mad dash to get funded as soon as possible out of fear that funds will run out. The funding appears to be in place. The Treasury is giving all indications they’ll fund the demand,” says Frank Hierro, Premier’s Mahoning Valley regional president. “But borrowers that need cash are obviously going to want to move as quickly as possible.” 

Some business leaders, Shaffer says, have expressed concern that they don’t meet the criteria to apply for a second draw from the fund, but “most of the customers we’ve had discussions with are pursuing an additional PPP loan.”

Bankers are also prepared to help borrowers through more due diligence than was needed in the first round, especially with being required to show year-over-year drops in quarterly revenue, Toot says.

“The quarter reduction in revenue quarter to quarter is something we’re going to analyze up front, just so we can give customers the proper guidance and peace of mind,” he says. “We want to set our clients up to have them forgiven. The last thing people want in tough times is another payment.”

Lending for the new phase opens Monday with first-draw borrowers applying through community development financial institutions. On Wednesday, second-draw borrowers from those institutions can apply. No date has yet been set for when other lenders can start submitting applications to the Small Business Administration, but Shaffer says the understanding at Farmers is that it will begin either Friday or Jan. 19, following Martin Luther King Jr. Day, when banks and federal offices are closed.

And when applications do open, he expects there to be plenty of activity, although without some of the confusion from the opening of the program last April. This time around he says, lenders are familiar with the process and the SBA has provided more guidance in the lead-up to the program.

“I’d think it’ll be similar to the first because there’s a defined pool of money and … everyone who meets the criteria is able to pursue [the loans]. We think there’s an eagerness to get money before funds are exhausted,” Shaffer says.

Unlike the first phase of the PPP, the new round contains set-asides for certain businesses and financial institutions to ensure the funds go to businesses that need it most. Provisions include:

  • $25 billion for second-time borrowers in low-income areas employing 10 or fewer requesting less than $250,000.
  • $15 billion for community development financial institutions.
  • $15 billion for small banks.
  • $15 billion for first-time borrowers in low-income areas employing 10 or fewer requesting less than $250,000.
  • $57 million for a SBA microloan program.
  • $25 million for Minority Business Development Centers.

The new bill also includes a $15 billion grant fund for live entertainment venues, allowing such businesses to get up to $10 million each. However, businesses must choose between the grant or a PPP loan.

Sixty percent of PPP funds must be used on payroll, the same as the first round of the Paycheck Protection Program, but how the remaining 40% is used has been expanded to include operational expenditures such as software or accounting needs, supplier costs such as paying for orders made prior to receiving a PPP loan, worker protection such as protective equipment and repairing damages resulting from public disturbances in 2020 that are not covered by insurance.

The loan amount will still be calculated from 2½ times average payroll, except for businesses in food service and hospitality – those with NAICS code starting with 72 – which can apply for 3½ times that amount. 

Seasonal businesses qualify for PPP, but must show that over a calendar year, gross receipts for one six-month period were no more than a third of receipts from the other period. The average monthly payroll cost for such businesses is calculated using any 12-week period between Feb. 15, 2019, and Feb. 15, 2020.

Guidance for the new round of the Paycheck Protection Program has yet to be released on how sole proprietors, partnerships and independent contractors are to calculate monthly payroll. However, guidance was issued for the first round that such business owners can draw from and some industry analysts expect the rules to stay largely the same. 

As the first phase of the program wrapped up and businesses started their year-end tax planning, area accountants said there were still questions regarding the tax implications. The new bill answers some of those, most notably the question of how the PPP loans would be taxed.

The final ruling: a business’ reported gross income doesn’t include any amount incurred by the forgiveness of the loan, essentially making the loan tax-free. 

Several tax credits were also extended, including payroll tax credits for paid leave created by the Families First Coronavirus Response Act – providing up to 80 hours of paid sick leave, 80 hours of paid sick leave at two-thirds the regular rate and 10 weeks of family and medical leave at two-thirds the regular rate – through the end of March. 

Credits for retaining employees were extended and expanded, now offering a refundable credit equal to 50% of employee compensation, minus health insurance, up to $10,000 per employee. It also allows businesses that received PPP loans to claim the credit to cover payroll expenses not covered by that loan.

Three credits – the Work Opportunity credit, New Markets credit and family medical leave credit – were extended through 2025. Business meals provided by restaurants are eligible for a 100% deduction through 2022.

Copyright 2021 The Business Journal, Youngstown, Ohio.