The Paycheck Protection Program, which has kept many of America’s small businesses afloat during the coronavirus pandemic, is back for round two. This is welcome news for franchises, many of which are locally owned small-business operations.
The new $284 billion PPP, created to halt job losses, was established under the federal COVID relief measure signed into law on Dec. 27.
In considering loan applications, the Small Business Administration will prioritize small businesses from underserved communities such as minorities, women and veterans for the first few days. After that, it will begin processing other loans.
Applications from companies that didn’t receive a PPP loan in the first round could begin applying Monday, Jan. 11. Companies that received money during the first PPP may start applying for round two funds on Wednesday, Jan. 13. Larger applicants will be able to apply later.
Eligible businesses that have been adversely affected by the coronavirus pandemic need to meet the SBA’s size standards – either the industry-based size standard or the alternative size standard. Also eligible are businesses with an NAICS (North American Industry Classification System) Code that begins with 72 (the accommodations and food-service category) that have more than one physical location and employ fewer than 500 people per location. Many franchises meet these eligibility requirements.
Business owners can apply through any SBA 7(a) lender, federally insured depository institution, federally insured credit union, and participating Farm Credit System institutions.
Some additional details of the new PPP follow:
- The interest rate is one percent.
- As with the first PPP, loans will be forgiven if certain requirements are met.
- Loans can be used for a broader array of expenses under the new program. These include operations costs, mortgage interest, rent, utilities, supplier costs, worker protection expenditures, property damage, and, of course, payroll.
- According to an International Franchise Association Government Relations & Public Policy Update, the eligible funds for many businesses will be calculated at 2.5 times monthly payroll. NAICS 72 businesses are permitted to calculate eligible PPP funds on 3.5 times monthly payroll, according to the IFA update.
- Borrowers can set their loan period between eight and 24 weeks as best meets their needs.
- Loans issued before June 5, 2021, have a maturity of two years. After June 5, the loans have a maturity of five years.
- No collateral or personal guarantees are required.
- It provides greater flexibility for wages to seasonal employees.
- Neither the government nor lenders will charge fees to small businesses in exchange for securing the loans.
- Business owners who apply for their first-draw loans under PPP round two may do so on or before March 31.
SBA Administrator Jovita Carranza sees the new PPP as continuing the crucial mission of its predecessor, which she credits with serving “as an economic lifeline to millions of small businesses and their employees,” according to a report in Nation’s Restaurant News.
For further information about the new PPP, including detailed eligibility requirements, application documents, and instructions for applying for the loans and for loan forgiveness, visit www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.
The Need for a New PPP
A November 2020 survey by the National Federation of Independent Business (NFIB) Research Center points to the importance of the new Paycheck Protection Program for small businesses. Highlights of that research, as reported by franchising.com, found that:
- About nine in 10 small business owners who borrowed through the first PPP had exhausted their first loans by the time they were surveyed.
- Slightly more than half of the borrowers under the first PPP expected to need more financial support within the next year.
- If eligible, about 44 percent of small-business owners said they would apply for a loan under round two of the PPP if eligible.
- Thirty-seven percent of small-business owners surveyed predicted a net operating loss for 2020.