What to Do if Your Business Runs out of PPP, SBA, or Other Federal Loans

Stressed female retail small business owner

Nearly 5 million small businesses have received a cumulative total of $518 billion in Paycheck Protection Program funding, as well as $135 billion in Economic Injury Disaster Loans, with an average loan size of $105,000 and $60,000 respectively. This may seem like a significant amount, but many businesses are running out of PPP and EIDL funding and are still unable to reopen or are operating at reduced capacity.

According to a survey by Goldman Sachs, about 84% of small businesses that received PPP funding will have exhausted their loan by the first week of August. The same survey found that:

  • Only 16% of loan recipients are very confident they will be able to maintain payroll without further government relief
  • 63% of small businesses say that less than 75% of their pre-COVID revenue has returned, and 60% say less than 75% of their pre-COVID customer base has returned
  • 48% believe their business is prepared for another wave of COVID-19, but only 37% say their business can survive another wave if shutdown protocols are put into place again

If you’re running out of funding, there are a number of reasons why you might have received less SBA funding than you applied for, including how lenders calculate how much funding your business is eligible for, other limitations with PPP funding, and loan caps.

Let’s take a closer look at why you might not have received as much funding as you applied for and what you can do if you’re running out of funding.

Problems with the Paycheck Protection Program

PPP is the most popular funding program for businesses struggling due to the COVID-19 pandemic—the weekly Small Business Pulse Survey conducted by the United States Census Bureau from April 26 to June 27, 2020 indicates that 75% of respondents applied for PPP funding, with just over 65% of businesses receiving funding.

However, there are some limitations to the Paycheck Protection Program that may have impacted how much funding you received, such as how lenders calculate how much you’re eligible to receive, how PPP funding can be used, and who is eligible:

  • How much are you eligible to receive? The amount of PPP funding a business is eligible for is calculated using the average monthly cost of the salaries of you and your employees. For sole proprietors, PPP is calculated based on your business’s net profits. If you didn’t receive as much funding as you applied for, it may be because the amount you requested did not coincide with your average monthly payroll costs.
  • Loan forgiveness: One of the primary advantages of PPP funding is that these loans will be forgiven if used properly. In order to be eligible for PPP forgiveness, businesses were initially required to use at least 75% of their funding for payroll. However, many businesses have other expenses to cover, such as rent, personal protective equipment, and the cost of adapting to the changing business landscape, and may not have received EIDL funding or have enough cash on hand to cover these expenses throughout the pandemic. With the introduction of the PPP Flexibility Act, this minimum has been reduced to 60% to allow businesses more flexibility in how they use their funding.
  • Who is eligible? Qualified businesses are eligible to receive one PPP loan in total. If you’ve run out of PPP funding, there are a number of funding options available to you.

What to do if you run out of federal funding

While the SBA was initially authorized to provide grants up to $10,000 and loans up to $2 million, the agency publicly confirmed that grants were capped at $1,000 per employee and loans at $150,000 at a congressional hearing on July 1, 2020.

FUNDING FACT: 19% of businesses that applied for SBA funding sought loans over $150,000, and the average loan size granted was $62,000. That leaves a lot of businesses short of the funding they need.

If you didn’t get approved for as much funding as you hoped, contact your lender. PPP and EIDL funding are not provided directly by the SBA—this funding is actually provided by your lender and is underwritten by the SBA in order to reduce the risk of the loan. That means your lender is ultimately responsible for the amount you receive, so if you want to appeal your loan amount, you’ll need to speak directly with them.

You may also wish to investigate alternative forms of funding. If you’re running out of federal funding, there are a number of funding options available to you.

Other SBA funding

There are other SBA funding options available to businesses who have already received PPP funding, including Economic Injury Disaster Loans and 7(a) loans.

EIDL and other SBA funding can be used to cover any business expense, including money owing to suppliers, maintaining new cleaning and sanitation requirements, and personal protective equipment for your employees. While businesses are eligible to receive both PPP and EIDL funding, EIDL funding cannot be used concurrently with PPP funding to cover the same costs. That means you can’t use PPP and EIDL funding for the same expense like payroll or rent.

Tax credits

The Employee Retention Tax Credit was created to incentivize business owners to keep employees on their payroll throughout the pandemic. If you received EIDL funding but not PPP funding, you are eligible for the Employee Retention Tax Credit. If you received PPP funding, you are not eligible for this tax credit.

State and local funding

Most states and municipalities are offering their own funding for small businesses impacted by the COVID-19 pandemic. Check with your local chamber of commerce, economic development office, and other non-profit groups that support small business in your area for more information.

Here is a complete list of state funding options.

Industry organizations

Some industry organizations are offering grants and specialized support. If your business is affiliated with an industry organization, check their website for details.

Community Development Financial Institutions

Community Development Financial Institutions (CDFIs) are not-for-profit financial institutions that provide credit and financial services to disadvantaged areas, with a special focus on women and minority business owners—two groups who have been especially impacted by the COVID-19 pandemic.

A study conducted by the National Bureau of Economic Research found that the total number of Latino-owned businesses fell by 32% from February to April 2020 due to COVID-19. Similarly, Asian-owned businesses fell by 35% and women-owned businesses fell 25%. However, Black-owned businesses experienced the worst impact:

  • Black-owned businesses fell by 41% from February-April 2020 due to COVID-19
  • 34% of Black-owned businesses say less than 25% of their pre-COVID revenue has returned compared to 20% of businesses overall
  • 28% of Black business owners believe they can survive another wave of the pandemic should similar shutdown protocols become necessary, compared to 37% overall

Many Black-owned businesses are sole proprietorships, don’t have enough employees to qualify for PPP, or don’t have an existing relationship with a lender, creating additional hurdles that may have prevented these businesses from accessing funds in the first round of PPP funding. The second round of PPP funding released on April 24, 2020 relaxed some of these requirements and channeled more funding to non-bank financial institutions in communities of color, but many businesses are still struggling.

If you fall into one of these groups and were unable to access funding from the SBA or didn’t receive as much funding as you need, you may be able to secure the funding you need from a CDFI in your area.

Alternative lenders

Businesses are currently only eligible to receive one round of PPP funding. If you’ve run out of PPP funding or aren’t eligible for other SBA funding, alternative online lenders like Greenbox Capital may be a suitable option for your business. Alternative lenders offer a number of advantages for businesses impacted by COVID-19:

  • Easier qualification criteria with less paperwork to gather
  • Faster review and approvals, with approval in as little as 2-5 business hours and funding in as little as 1 business day
  • No restrictions on how your funds are used—use them for payroll, inventory, or everyday operating expenses
  • A variety of funding options are available to suit your business’s needs, including merchant cash advances, invoice factoring, collateral loans, and business lines of credit
  • Businesses with low credit can receive funding. Instead of focusing on your credit score, our Funding Advisors will review the overall health and potential of your business
  • Businesses in high-risk industries can also receive funding

Wrapping Up

Many businesses who received PPP or EIDL from the SBA are running out of funding but have still not returned to their normal level of operations. If you’ve run out of federal funding, there are a number of options available to you, including:

  • Other SBA funding
  • Tax credits
  • State and local funding
  • Industry organizations
  • Community Development Financial Institutions
  • Alternative lenders like Greenbox Capital
Learn more about alternative funding
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