Preparing for Another Round of PPP

Just thirteen days after its launch, the $350 billion Paycheck Protection Program fund (part of the $2 trillion COVID-19 stimulus package) had exhausted all funds. There have been talks of more funding coming, but this has left questions circulating like: Are more funds coming? How much more? When?

All signs point to ‘yes’ when asking if more funds will be added to the program. Shortly after the initial roll out of PPP, Treasury Secretary Steve Mnuchin told CNBC, “I want to assure all small businesses out there: We will not run out of money,” and “we want to assure everybody if you don’t get a loan this week, you’ll get a loan next week or the following week. The money will be there.”

Members of Congress are nearing a decision regarding the second round of PPP loans. According to CNBC, “As of Sunday night, Senate Democrats and Republicans were negotiating a deal that would allocate $310 billion more into the Paycheck Protection Program, setting aside $60 billion for rural and minority groups” CNBC says the House could take up the bill as soon as Wednesday (April 22^nd).

The bill is taking a while to get passed, as the parties discuss what should and should not be included in the bill. “Democrats rejected a proposal to refill the fund two weeks ago. They instead argued for changes, including adding more money to support federal testing, hospitals and local governments. They’ve also pushed to ensure groups without banking relationships get access to the program and SNAP benefits,” says a recent article from CNBC.

The article additionally mentions a call hosted on Sunday with Senate Majority Leader Mitch McConnell, President Donald Trump, Chief of Staff Mark Meadows, and Treasury Secretary Steve Mnuchin in which Mnuchin said the program will not include state and local government funding or SNAP benefits.

In a press conference held on Sunday, April 19^th, President Trump said, “We’re also looking at helping our hospitals and our rural hospitals who have been hurt very badly, the rural hospitals for a long time have not been treated properly, we’re looking to help them and beyond, so we’re looking at hospitals also part of the package and we’ll see how that all comes out.”

The president also said he supports aid for state and local governments, just not as part of this PPP bill. “We’re going to be saving that for a later date, he said. “That will probably be our next negotiation, but I’m in favor of it.”

While grateful for the continuation of the Paycheck Protection Program, there are still concerns and criticisms of the program. The specific rules for how to spend funds will likely remain the same, but that poses a problem, as a Politico News article claims, “The legislation also likely won't tackle controversial elements of the program’s structure, chiefly an exemption that allowed large companies such as Shake Shack and Ruth's Hospitality Group to obtain tens of millions of dollars in loans, as well as rules that encouraged banks to favor their existing customers.”

Another big concern is that the $370 billion just simply isn’t enough. Politico also mentions “Banking industry representatives say the program has a burn rate of $50 billion per day and needs closer to $1 trillion to meet demand, with hundreds of thousands of applications pending.”

An April 6^th survey from PYMNTS, a sector of What’s Next Media and Analytics, shows the average small business reported having enough cash to only stay open for 37 days, and that the government aid would allow them 60 additional days.  

The survey data also reports that the first round of PPP loans have done very little to relieve small business’ fears among the pandemic. Interviews conducted on March 24^th and again on April 6^th only show a 0.2 percent increase in small businesses that feel confident. More of the data shows “just over 41 percent of business believe they are stable enough to ride out the coronavirus panic, while a little over 58 percent are either unsure or think they won’t make it,” which remains unchanged between the two interview dates.

Keeping in mind the surveys were conducted on April 6^th, small businesses that did not get in on the first round of PPP are now down to an average of 22 days before having to close. Government officials are assuring aid is on its way. House Speaker Nancy Pelosi said on Sunday, April 19^th, that an agreement is “very close” for round 2 of PPP and that “businesses will have the money in a timely fashion.”

Many bankers were concerned that the first round of PPP, beginning April 3^rd, happened too quickly and lacked adequate planning. While small businesses were assured the program wouldn’t run out of money, how exactly this would happen was left ambiguous. “As soon as the program opened, frenetic applications from small businesses on the edge of survival buried bankers as they came in by the thousands and tens of thousands while said bankers were still trying to figure out all of the legal contours of accepting applications and distributing funds in real time,” says PYMNTS.

Banks have fine-tuned their systems, and many have thousands of outstanding applications, many fully processed and verified, that never got to the funds before they were exhausted. According to American Banker, OnDeck estimates that 93% of U.S. small businesses did not have the chance to be funded through the PPP. This time around, small businesses and banks alike are better prepared to handle the demand. PPP round 2, let’s go.

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