As we head into the July 4th weekend, the Paycheck Protection Program Extension Law is on its way to President Trump’s office for signature. This law will be extend the reporting deadline for small businesses and the self-employed a PPP loan application on August 8, 2020.
However, as Congress welcomes the latest legislation, many independents and minority small business owners are wondering if this expansion will have any real impact. For many of this group, the P3 loan has been a source of frustration and anger. The process was complicated, as the banks were not receiving information and seemed to prioritize their biggest customers. In addition, self-employed workers had to wait a week longer to apply than small businesses. As one business owner noted, “As a sole proprietor, I wasn’t eligible until late in the game. “
As a result, many small businesses did not have access to PPP funds until the second round of financing. In fact, some potential borrowers bailed out the program before obtaining funding because of the difficulties encountered in the process. It seemed like there were a lot of roadblocks to success, and the Treasury and Small Business Administration (SBA) did the borrowers no favors by releasing their forecasts very slowly.
“The lack of consistency on the part of the government and the banks made this process very difficult for the business owner on how to ensure there was enough paperwork to get them approved,” says Eric Pierre, CPA and owner. of Pierre Accounting in Southern California and Austin. , Texas.
Access to loans was even more complicated for some groups of business owners with less access to banks. Minority business owners often do not have access to the same financing resources as other businesses.
“An additional challenge for the self-employed and minority business owners is that many of them did not keep good accounting and payroll records, which made it more difficult for them and it was also frustrating for them to catch up, especially in the first round. when the money was going so fast, ”says Pierre.
But there’s a reason the 5-week extension might be cause for hope for freelancers and minority small business owners. Interestingly enough, this hope could be driven by the way FinTech companies like PayPal
Process and players improved
Part of the challenge with the initial rollout of PPP loans was that it was a plan rolled out very quickly by the Treasury and the SBA. The rollout was so rapid that the banks weren’t ready for the influx of requests. The process was confusing and opaque.
However, the improvement of the program happened quickly. First, with the deployment of FAQs, the process has become clearer. There are explicit instructions on the forms and calculations to submit for a loan. Second, FinTech companies have decided to become leaders in the space and they don’t want bigger customers. Instead, they want to target small loans.
A FinTech, Kabbage, was one of the largest providers of PPP loans. Interestingly, prior to the Covid-19 crisis, the company had never processed a loan for the SBA. Yet like the initial June 30e PPP program deadline passed Kabbage found that 93% of all their applicants had 10 or fewer employees; 62% had an employee and 58% were self-employed. In addition, Kabbage’s total average loan amount was $ 28,100 and 50% of all loans were less than $ 13,500.
This is good news for minority businesses and self-employed people who now want to apply for PPP loans. The beauty of FinTech companies is that they are automated and do not require a banking relationship. They were able to rework their websites to make the PPP loan process user-friendly. In many ways FinTech is capable of being nimble and that helps a group that might not be well served by the traditional lender.
Additionally, FinTechs understand that they need to reach out to minority business owners to ensure their businesses survive. An example of how this happened is that Kabbage teamed up with Sean “Diddy” Combs and his organization. Our fair share who does outreach to black business owners for PPP loans. By providing this awareness, the aim is to help provide greater support to growing minority businesses.
It is worth to apply
But despite this progress, the question remains whether minority small business owners and the self-employed feel the P3 loan is worth it.
“I would absolutely tell someone to apply,” Pierre says. “You should never give up on obtaining financing for your business until the money is exhausted, especially with the level of economic uncertainty. Some economists predict that this pandemic could have an impact on our economy until 2021. “
This is important for minority business owners and the self-employed. It is revealing that Congress voted unanimously to extend this application date by 5 weeks. Clearly, the unfamiliar economic environment means that small businesses have an uphill journey to travel.