Small-business loan program resumes Monday morning: Here’s what you should know

At 9:30 a.m. Chicago time on Monday, the Small Business Administration restarts the wildly popular COVID-19 loan program, with lenders poised to submit a tidal wave of applications that could quickly use up the new round of funding.

A spokesman for the giant JPMorgan Chase told the Chicago Sun-Times as of Sunday afternoon the bank is ready to submit at least 150,000 completed loan applications on Monday to the SBA. Another 150,000 applications are already in the line for processing left over from the first round.

As the economy continues to melt because of the coronavirus pandemic, with lockdowns knocking some businesses out for more than a month, there is desperate need for loans through the new federal Paycheck Protection Program — known as the PPP.

The initial $349 billion in funding appropriated by Congress was exhausted in two weeks. The SBA stopped accepting loan applications from lenders on April 16.

Last week, Congress replenished the PPP pot with $310 billion for loans plus a little over $11 billion to cover lender fees.

Here are some things to know:

Who is eligible for the PPP loans?

The PPP program is aimed at small business and nonprofit employers with fewer than 500 workers. The financial lifeline grants loans equal roughly to about 2.5 times monthly payroll costs.

Does the loan have to be repaid?

No, not if the loan is used as intended, to keep workers on payrolls for eight weeks after the loan is granted and pay some operating costs.

How many PPP loans were granted in the first round?

Nationally, there were 1.6 million loans approved. In Illinois, as of April 16, there were 69,893 loans approved totaling $15.9 billion.

What is expected in the second round?

“We think that there will be just as many, if not more, applications during this second round of funding,” Nick Simpson, a spokesman for the Consumer Bankers Association, told the Sun-Times on Sunday.

Has anything been done to make sure public companies like Potbelly, Ruth’s Chris Steakhouse and Shake Shack don’t get loans in the second round? The Chicago-based Potbelly returned its $10 million loan Saturday.

Yes, on two fronts. The negative press these companies received about the PPP loans will discourage other businesses from applying for the loan since the public shaming isn’t worth it.

New SBA guidance, updated Sunday, said, “Large companies with adequate sources of liquidity to support the business’s ongoing operations” now must “certify in good faith that their PPP loan request is necessary.”

And just to make sure, the SBA spelled out the intent of the new certification: “It is unlikely,” the SBA said, “that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.”

On Friday, Edelson PC, a Chicago law firm, filed a federal lawsuit against three companies: Chase; the parent company of Ruth’s Chris Steakhouse; and Phunware, a data vendor for the Trump campaign on behalf of Sha-Poppin, a popcorn maker in Westchester. The lawsuit alleges improper “institutional clout” was used, resulting in the popcorn company not getting a PPP loan. Chase said it had no comment on the pending lawsuit.

Lenders get bigger fees for larger loans. What is being done to make sure lenders don’t give priority treatment to favored customers, enabling them to more quickly get their applications to the SBA?

Nothing, according to Robert Scott, the regional administrator for the SBA’s Great Lakes Region at a Friday briefing with reporters.

“There was nothing in the law and nothing in our regulatory authority under the U.S. Small Business Administration that would allow us to force a bank to do first-come first-serve or categorize them under need or whatever it may be; that is up to the lender,” Scott said.

To curb the ability of the biggest banks — with assets over $50 billion — to corner the PPP loans, the SBA on Sunday imposed on this round a $60 billion cap on the amount of loans any bank can make.

What should an employer do who applied for a PPP loan that the lender did not submit to the SBA for approval? Can someone apply to another lender in this second round?

Yes, Scott said. If the lender has not yet sent your application to the SBA, perhaps because more information was still needed, it is OK to go someplace else.

Any tips for this second round?

Yes. Apply to smaller lenders who were at a disadvantage in the PPP first round. Congress set aside $60 billion for lenders with less than $50 billion in assets — Community Development Financial Institutions; minority depository institutions; certified development companies, microloan institutions; state and federal credit unions and some community banks. A list of lenders by state can be found at https://bit.ly/2yPyjF2.

The second round of PPP funding will go fast and there is no guarantee when or if Congress will add a third round.