$291 Billion plus for the 2nd round PPP has been released for 2021. The good news, PPP has been extended to June 30, 2021; therefore, this article will present detailed information for those businesses who have not applied and/or those who have applied and are still waiting on PPP funding. The information will provide certainty your business is with the correct PPP lender. By chance, you did not choose the right PPP lender or have not applied here is to how to make quick changes to maximize your opportunity.
There are thousands of Lenders and 3rd party platforms accepting PPP applications nationwide. However, each Lender is different based on their own authorized approval limit for PPP lending. These limitations affect the consumer and/or business owner in a big way. The PPP approval authority is a limitation; each lending entity can lend SBA funds. Not all have the same approval amount. This means each lender has a maximum dollar amount per application a borrower can borrow. This main factor grossly places the consumer at a disadvantage.
Here is the reason why:
Each Lender-approval authority is based on their prior historical performance of lending, meaning the quantity of loans provided prior to COVID and their dollar range of what the Lender has loaned previously; what is on the bank’s books or balance sheets. Based on this factor will determine their allowances. For example, suppose a particular Lender has never provided a million-dollar loan nor collected on a million-dollar loan. In that case, the SBA will not authorize that Lender a million dollars per loan as they would not have any prior history to manage nor facilitate a loan of that magnitude. Therefore, the Lender is authorized within their range based on their prior history.
How this affects the Borrower.
In the 1st round of PPP offerings- business filings of 1120 and 1040 or Schedule C net earnings (line 31) were utilized. If the business income/earnings surpass, as an example, $1,000,000.00, the business is entitled to receive a $500,000.00 PPP loan. The same would apply for the 2nd round less now Schedule C gross earnings (line 7) can be utilized fairly and equivalent to all other businesses less expenses deducted.
The Borrower’s Advantage vs. Disadvantage:
If Lender A is authorized to dispense 3 Million dollars per application, the business is in a great position, loan proceeds of $625k are not a problem. If Lender B is authorized to dispense or loan $20k, $100k, $350k, and/or any amount less than $625k, the business is at a great disadvantage unknowingly. Because the business did not apply with the correct PPP Lender that could provide the full loan amount qualified; instead, that lender or platform will qualify the business for the maximum dollar amount they are authorized to provide per application, essentially leaving money on the table.
If the business qualified for more than the Lender was authorized to disburse or loan, this is what happens to the remaining funds. The main answer “forfeiture.” Clarification will be in two (2) parts: For the businesses applying for the first round.
- Going forward, effective today, before applying, check the maximum limit the Lender can provide. Determine your loan value against your earnings to ensure the Lender can meet your expectation. In the event, the Lender cannot meet your expectation based on your qualification, check around before applying to ensure your business finds its perfect match.
- For businesses that have already applied yet have not received funding, then do so if the decision is to continue forward. Once the loan is issued, there is nothing that can be done; you forfeit those funds if your business qualified for more. If your business decision is to maximize your loan potential once discovering the current lender you have applied cannot meet your qualified expectation, then cancel the current loan before funding and then switch Lenders, one with a higher approval limit. Overstand, only do this if your business qualifies for more than what has been approved yet limited based on the current lending institution’s capability to provide more.
Whatever decision one makes once the loan amount is received, one cannot return for the balance nor go to another bank or platform to acquire the difference. Your business would register in the SBA PPP internal E Tran system as a recipient per the executed SBA contractual loan agreement.
The terms of the PPP loan agreement remain unchanged: 1% interest rate, 10-month deferment before applying for forgiveness or making the first payment, and a 5-year term. Applying for forgiveness is optional. Amounts are approved based on proven annual earnings 100% backed by filed tax returns and proof of business life before COVID 19 by providing invoices, bank statements, payroll, or book-keeping data.
To attain more information regarding all Small Business Administrative PPP guidelines for Lenders, Borrowers, and up-to-date data, resources, and other products, visit www.sba.gov. It will be hard to determine if a business is railroaded without knowing the correct information. Meaning, undercover inequality, so learn what is needed so that unnecessary documentation is not requested to eliminate your business from applying. More details are upcoming in the future regarding this serious matter.
