Many retailers were relieved last week when the federal government approved additional funding for small business loans designed to help offset the impact of the COVID-19 outbreak.

However the joy is likely short lived as many who applied for loans under the first funding round have not yet received them, and many continue to find the process confusing.

A Tuesday webinar sponsored by the American Amusement Machine Association attempted to give guidance to companies trying to navigate the process of applying for a Paycheck Protection Package loan. An additional $320 billion became available beginning Monday.

In round one of the SBA lending program, the banks and the SBA approved $349 billion in two weeks, including 1.7 million businesses with the average loan being $206,000, said webinar moderator David Cohen, manager of DSC Advisory Llc., Sharon, Massachusetts.

Mike Smith, chief operating officer and executive vice president at Firestone Financial in Needham, Massachusetts, said the SBA had to come up with rules in a matter of days which was a short time, hence, the rules changed a lot early in round one. 

For example, applications were coming in with FICA taxes included which then had to be reworked since SBA decided not to include the FICA taxes.

“The SBA system was not equipped to handle the volume of applications,” Cohen said.

Round two, unfortunately, hasn’t gotten off to a better start. The new funding became available Monday at 10:30 a.m. and the system crashed at 10:34 a.m., he said. The SBA was not equipped to handle bulk entries of applications from lenders.

“We’ve had people going through the system all night long trying to get in and trying to secure funds for our customers, and we have been having a very frustrating experience, being timed out and kicked out of the system repeatedly all night long,” Smith said.

For an applicant to be properly prepared, Smith said to get materials to the lender, with accuracy, as quickly as possible. Third party payroll services can provide reports that do the calculations for the borrower, he said.

One frustration for many borrowers is not having a business relationship with an institution. “Many banks are just not being able to handle people who are not customers,” Smith said.

Progress coming

On a more hopeful note, Cohen said he has a list of 70 financial institutions that as of last week confirmed whether or not they are taking applications, along with links to their online portals. He said there are some online lenders working with businesses that don’t have established banking relationships.

In addition, he said, American Express has been taking loan applications with businesses that have an open business account with American Express.

Best practices for applications

Megan Angle, CPA, Porte Brown Llc., Elk Grove Village, Illinois, emphasized the importance of having accurate data in a loan application, and to document everything.

“Aim for conservatism versus being too aggressive,” she said.

Smith pointed out that if a borrower also got an Economic Injury Disaster Loan, another SBA administered loan, the EIDL amount has to be subtracted from the amount of the PPP loan that will be forgiven. One of the most desirable features of the PPP loans is they are potentially forgivable if the recipient uses the funds to mostly maintain payroll.

One complication, however, is that many who have applied for EIDLs have not yet received them.

Many applicants have received EIDL numbers, which means they are supposed to get the loans, but have not yet received them, Smith said. If the same company is applying for a PPP loan, they could find themselves in a quandary.

One listener said he applied for an EIDL loan on March 30 and has not heard back from the SBA. Smith said he would have expected a response by now, but there is a “tremendous” amount of backlog.

Sal Cifala, sales executive at Firestone Financial, confirmed that anyone who has received an EIDL number should assume they will be receiving the money.

Additional complications

Another area of confusion is the “safe harbor ruling” the SBA has issued, Cohen said.

This ruling requires businesses to certify that the loan is needed to sustain the business, Cohen said. This is why some well known companies have returned their PPP loans, he said.

“At the end of the day, the viability of their business is not predicated on getting funding from the government,” Cohen said.

The PPP loan requires that current economic uncertainty makes the loan necessary to support the ongoing operation applicant, Angle said.

“It’s incredibly unclear what ongoing operations it’s specifically referring to,” she said. “Unfortunately at this point there is no clear guidance out there exactly what this means.”

Borrowers have to pay attention to whatever additional guidance SBA offers, she said, adding that the SBA has a “frequently asked questions” document has a lot of helpful information that is updated regularly.

“At this point, you just have to wait,” she said.