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As we approach the weekend of July 4, the Check Protection Program Extension Act is on its way to President Trump’s desk for signature. This Act will extend the time that small businesses and freelancers have to submit a PPP loan application until August 8, 2020.
However, while Congress welcomes this latest legislation, many self-employed and minority small business owners wonder if this extension will have a real impact. For a large number of this group, the PPP loan has been a source of frustration and anger. The process was complicated since the banks did not offer information and seemed to prioritize their larger clients. Additionally, self-employed people had to wait a week longer to apply than small businesses. As the business owner noted, “As a sole proprietor, I was not eligible until the end of the game.”
As a result, many of the smaller companies did not have access to PPP funds until the second round of financing. In fact, some potential borrowers dropped out of the program before raising funds due to challenges in the process. There seemed to be many obstacles to success, and the Treasury and Small Business Administration (SBA) did not do borrowers any favors by providing guidance very slowly.
“The lack of consistency on the part of the government and the banks made this a very difficult process for the business owner on how to make sure the paperwork was enough to get them approved,” explains Eric Pierre, CPA and owner of Pierre. Accounting in Southern California and Austin. Texas
Accessing loans was even more difficult for some groups of business owners with less access to banks. Minority business owners often do not have access to the same financial resources as other companies.
“An additional challenge for self-employed and minority business owners is that many of them did not keep good accounting and payroll records, which made it more difficult and frustrating for them to catch up, particularly in the first round when money I was going so fast, “says Pierre.
But there is a reason why the 5-week extension could be cause for hope for self-employed and minority small business owners. Interestingly, that hope could be fueled by how FinTech companies like PayPal
Improved process and players
Part of the challenge with the initial rollout of PPP loans, was a plan very quickly implemented by the Treasury and the SBA. Deployment was so fast that banks were not prepared for incoming approaching applications. The process was confusing and opaque.
However, program improvement has happened quickly. First, through the deployment of frequently asked questions, the process has become clearer. There are explicit instructions on what forms and calculations should be submitted for a loan. Second, FinTech companies have decided to become leaders in the space and do not want the largest customers. Rather, they want to target smaller loans.
One FinTech, Kabbage, was one of the largest PPP loan providers. Interestingly, prior to the Covid-19 crisis, the company had never processed a loan for the SBA. However, as the initial June 30th Kabbage’s approved PPP program deadline found that 93% of all its applicants had 10 or fewer employees; 62% had an employee and 58% were self-employed. Additionally, the total average Kabbage loan amount was $ 28,100, and 50% of all loans were less than $ 13,500.
This is good news for minority businesses and freelancers who now want to apply for PPP loans. The beauty of FinTech companies is that they are automated and do not require a bank relationship. They have been able to rework their websites to make the PPP loan process easy to use. In many ways, FinTech can be nimble and that helps with a group that might not be well served by the traditional lender.
Furthermore, FinTechs understands that they need to be in contact with minority business owners to ensure that their businesses survive. An example of how this has happened is that Kabbage partnered with Sean “Diddy” Combs and his organization Our Fair Share which is reaching out to black business owners for PPP loans. By providing this reach, the goal is to help further support growing minority businesses.
Worth applying
But despite this progress, the question remains whether small minority business owners and freelancers feel the PPP loan is worth it.
“I would absolutely tell someone to apply,” says Pierre. “You should never give up on getting funds for your business until the money runs out, especially with the level of economic uncertainty. Some economists predict that this pandemic may affect our economy until 2021. “
That is important to minority business owners and freelancers. Tellingly, Congress voted unanimously to extend this application date by another 5 weeks. Clearly, the unknown economic environment means that small businesses have an arduous journey ahead.
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