As PPP Winds Down, Other CARES Opportunities Shine
The historic Paycheck Protection Program was a lifeline for a lot of franchise business, but as the program ends on June 30, the COVID-19-era financing questions are changing to how to meet the program’s forgiveness rules and what other finance options are out there.
Mike Rozman, co-founder and CEO of the fintech firm Boefly, said it really was a herculean effort on the part of firms like his and the banks and the Small Business Administration pushing out the allotted $660 billion in treasury capital designed to ease the economic suffering of the pandemic.
“They did a heroic effort of work to help small borrowers out PPP was an enormous success only because banks recognized their civic duty to deploy treasury dollars,” said Rozman. “More than 5,000 banks answered that call. We worked with banks that worked all through Easter, through Passover, through Mother’s Day. Literally every weekend even though they may not have been SBA lenders previously.”
He let himself brag a bit, saying BoeFly alone actually closed loans with more than 10 separate lenders, one of which alone funded 3000 business owners for a total of $321 million. Fintech was a unique part of that process, he said. Where many banks were crushed by a surge of loan requests, such firms were able to execute applications and route them to banks that were ready to deploy capital.
“I think financial technology companies were better positioned to respond quickly, and furthermore, in the case of Boefly, because we’re not a singular lender, we’re positioned to match up supply and demand,” said Rozman.
A lot of those loans went to the First Bank of the Lake, a small bank in Osage Beach, Missouri. It’s not exactly the first place a borrower thinks of, but it was ready to make PPP loans en masse.
As the program winds down, borrowers need to make sure everything is in order to maximize forgiveness. Rozman wrote a guide for borrowers looking to do so on the IFA website, but one of the most important things is having good records so lenders can easily assess a loan.
“I think the best practice would be if you can designate an account just for your PPP dollars for those businesses that are still closing at this point,” said Rozman. “But otherwise it’s not all that different than filing your taxes.”
Marking the funds in QuickBooks or other accounting software works fine, too, but whatever the system it needs to be consistent. The second key records are for hiring. Payroll documentation will be important so investigating lenders can see that payroll accounts for 60 percent (lowered from 75 percent in early June) of the PPP loan's use. Borrowers have until the end of the year to return to pre-COVID employment and salary levels. Robust records will also be important for businesses that want to claim they did attempt to re-hire people, but those people declined. Borrowers are not faulted for those missing employees but only if they have written proof of the offer and the decline.
And keep those records. There was a distinct feeling of “throw money at it” during the early days of the COVID-19 crisis, but that doesn’t mean the SBA won’t be back to double check things someday.
“In this case, when you send in the supporting documents, you want to make sure you’re keeping records on file. The SBA has made it clear that there are opportunities for future audits and you’re responsible for having your own documentation,” said Rozman.
It might seem like not meeting forgiveness isn’t a big deal—a 1 percent, five-year loan isn’t exactly terrible financing. But any borrowers looking to get additional financing in the near term should really strive for forgiveness because when a bank sees a company that couldn’t meet the criteria, it raises red flags.
“I think banks will definitively be paying attention to existing debt, including PPP, and if a business owner was not able achieve forgiveness,” said Rozman. “There’s this open question of if you were able take advantage of the 24-week period but couldn’t get forgiveness, fundamentally if you can’t hire, I’m not comfortable with this new debt.”
But as the giant loan program enters its final days of accepting applications, there are also other opportunities under the CARES Act. In one key program, the SBA will pay all principal, interest and any associated fees borrowers owe for three key loan programs: the standard financial assistance program known as 7(a), the 504 program that covers loans used to acquire fixed assets, and traditional microloans. All such loans dispersed by September 27 qualify for that six-month benefit.
“I love this opportunity. Conventional borrowers who have been with a conventional lender in their existing portfolio, they can transition into being refinanced by SBA. They avoid the balloon payment, they might have other better options and now they’re looking at six months of principal and interest," or P&I, "coverage who may have thought they outgrew SBA,” said Rozman. “One of the things we’re seeing is acquisition opportunities. If they can close that business acquisition financing by late September, they’re looking at the next six months of P&I covered. That was built into the CARES program, and it’s a really compelling opportunity.”