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Financial Planning – PPP Loan Update

PPP Loan Update

On March 27th President Donald Trump signed a $2 trillion dollar Federal Stimulus bill into law, also known as the CARES Act. Included in the package was $349 billion dollars to be allocated towards the Paycheck Protection Program (PPP). The PPP creates a pool of capital that small businesses can use toward payroll, rent, utilities, a few other overhead expenditures. As long as the businesses use these loans for these qualified expenses and meet the guidelines laid out in the Cares Act, the loan could be 100% forgivable (Subject to Review by the Lender that submitted the application to the SBA). With over 30 million small business operating in the U.S. it comes to no surprise that this program would see a massive spike of applications. After 13 days of funding and approving loans, the SBA announced over 1.6 million loan applications [2] were processed before the budget was exhausted . The amount approved under the CARES Act didn’t come close to aiding all the small businesses that needed and applied for the program.
According to a survey by the National Federation of Independent Business, 80% of applicants
[3]  were not approved .

This leads us to PPP Loan funding Round 2. As of April 25th, another $310 billion dollars was approved to continue funding PPP loans. Using the first round of applications as a proxy, bankers are predicting this latest of funds will be exhausted before the end of the week. Not only are there millions of loans in queue from the first round of funding, but there could be thousands of new applications as well. The SBA began approving their loans using their E-Tran system Monday morning. The question that lies ahead of us now is whether or not our government will need to continue to approve more money for this program and how much they will approve for any additional rounds. It took the government 10 days to approve the second round of funding and at this rate we could need another 1 – 2 rounds of funding before all the businesses get the money they need. The program was intended to provide qualifying businesses with assistance to cover roughly 2 months of payroll. With the demand shock now in full effect, two months of assistance may prove inadequate to assist service related businesses that have been completely shut down and will most likely not see a robust rebound of activity – at least immediately following the re-opening of the economy.

Enough with the negativity, let’s talk about what to do to ensure your business can get a check or at least increase your odds. If you have not already applied, there’s still time to do so! With the largest banks receiving the largest number of applications, a borrower may have a better chance of having an application approved and forwarded to the SBA for funding with a smaller bank or credit union. Due to the high backlog of loan applications and a system that limits all banks to process no more than 350 applications per hour, working with a smaller bank that has less applications all together may better your odds.
If you are looking for more guidance, have questions on how much your business would qualify for in forgivable loans, or would like to talk about your business plan going forward, feel free to set up a free consultation with myself and our firm’s Chief Investment Officer, Michael Souza by emailing us at info@koawealth.com

We wish you, your family, and your business safety and prosperity during these challenging times.

 

Chad Williamson

Koa Wealth Management

11260 El Camino Real, Unit 220, San Diego, CA 92130

760-602-6920

info@koawealth.com

 

Sources:

1 https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf
2 https://bankbclp.com/wp-content/uploads/2020/04/SBA-PPP-Loan-Report-Deck-as-of-4-16-20.pdf
3 https://www.nfib.com/content/press-release/economy/80-of-ppp-applicants-are-still-urgently-waiting-for- financial-assistance/

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