When the federal government launched its first round of forgivable loans to support small businesses reeling from the effects of COVID-19, the $349 billion fund was gone in 13 days.
Observers expected a repeat with the second round of funding that launched April 27, but two weeks after Congress injected another $310 billion into the program, there is plenty of cash left.
As of late last week, more than 40 percent of the funds remained available in the Paycheck Protection Program. Lenders had approved nearly 2.5 million loans worth more than $185 billion, leaving at least $125 billion remaining, according to the Small Business Administration (SBA).
Part of the diminished demand could be a response to public outcry over multi-million-dollar companies tapping the aid, which was designed to help small businesses. Or, it could be the growing concern among small business owners that the PPP loans simply do not meet their needs.
In order for the money to eventually be forgiven, owners must spend at least 75 percent on maintaining payroll. The remaining 25 percent can be spent on operating costs like rent and utilities, but may not go toward mortgage principal or pre-payments. Money spent on non-qualifying expenses must be repaid at an annual rate of 1 percent within two years.
Information on the forgiveness process has caused confusion, hence creating worry among business owners that they may be on the hook for the money.
As a result, some banking groups are pushing the SBA and Treasury Department to issue a standard forgiveness form for borrowers and to create a calculator so that every bank produces the same outcome, Reuters reported.
“From a banking perspective, we are really acting as a middleman here. We don’t want to carry these loans on our books,” David Pommerehn, general counsel of the Consumer Bankers Association. “We see this as potentially a bigger mess than the funding process.”
Source: Fox Business