SBA’s Paycheck Protection Loan Program and the CARES Act

On Friday, the Small Business Administration (SBA) posted the final application for the Paycheck Protection Program for small businesses. This is the result of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a bill that was fast-tracked through Congress and signed by the President, part of which was to provide supplemental funding to businesses to prevent or significantly delay layoffs. With an over 85% increase in Virginia’s unemployment claims just last week (and that’s just my state), it is no wonder they wanted to get this moving.

If you are a small business, you NEED to apply for this loan. I know. I know what you are thinking. “But Karen, I don’t want to accrue more debt because business may drop off. Now is the time to be financially prudent.” I hear what you’re saying, and I feel the same way, but I am here to tell you that there is a time to be debt conservative and there is a time to fund your coffers. Now is the time to fund your coffers so that you have contingency funds. You will have customer attrition over the next several months and you will need the extra cash. We don’t know how long this disaster is going to last and you can’t beat the terms. The loan has a 4% maximum interest rate with a maximum term of 10 years. Moreover, if you use the funds to keep current staff on payroll, there are provisions in the program for the loan to be forgiven entirely in 2021. When was the last time you saw terms that great from a bank? Uh, never.

This isn’t a handout for the sake of corporate welfare. Remember what I said was the #1 priority of disaster recovery? Let me jog your memory. Take care of your employees so that they can take care of your customers. Taking care of your employees enables services to your customers (when they need it the most) which keeps your business going. For businesses that are idling during the quarantine, this allows you to retain your staff so that you’re in a position to restart operations when things recover. Rehiring employees is an expensive and time-consuming activity. Guess who will become the Chief Cook and Bottle Washer for all essential business processes when a small business lays off workers? It will be you, the business owner, and of course already overworked key staff members. The other outcome is that critical processes (such as Accounts Receivable) do not get performed in a timely fashion. Either way, it is a lose/lose situation.

Keeping with the train of thought about layoffs, let’s say that you live in a community where there aren’t a whole lot of other employment opportunities for your folks. You can just “furlough” them for a few months and then bring them back on when things start to pick up. Who’s to say if they will still be available? If they are, then how do you think they are going to feel about your company? Are they going to be committed and supportive when you need them to go the extra mile as things restart? There is an old line about this that has to do with money talking and something else walking, but I think you get the picture. They will stay long enough to get a better, more long-term, and stable employment opportunity and then they will bolt. (BTW, over my 20-years of advising businesses on clean up after layoffs due to disasters, they always regret having laid off staff because of the downstream costs of recreating the institutional knowledge that is now gone.)

So, let’s put our big boy and big girl pants on and apply for a PPP loan. Rah! Rah! (That’s my best cheer as your Disaster Recovery cheerleader I can provide.)

Here’s the deal on applying. You can only apply with a bank that is an SBA-approved lender. Do yourself a favor and use one you have already worked with in the past to submit your application. They know you and they know your business. Even if they have pissed you off in the past (and most of them have pissed us off at one point or another), they are more likely to prioritize submitting an application from a business they know then one they just met. You can shop for a better bank at a later date if you want to take your business elsewhere.

Don’t necessarily bet on the big banks being in any better position to lend to you than a local community bank. As of this writing, Wells Fargo hit their lending cap due over the first weekend of the program being active! This is due to the Consent Decree they executed with the Federal Reserve in 2018 in the aftermath of their being found guilty of fraud. It will literally take a vote of the Federal Reserve Board of Governors to increase their ability to loan under this program. Banks like Bank of America, Citi, and Chase, although larger, are processing tens of thousands of applications that are tapping even their capacity.

This money is not going to last and who knows if there will be a CARES Act II with more funding. There will obviously be hiccups as would be expected with any program of this size being stood up in a matter of a couple of weeks. Look at this Small Business Owners Guide to the Cares Act from the SBA and apply for a Paycheck Protection Program loan ASAP!

Do it now. Do it this week. Let me know how it goes. Don’t delay because my Super Spidey Sense will know, and I will have to hunt you down. (Just kidding.)

Stay agile. Stay safe. Keep going.

The Disaster Lady