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Second-round PPP loans are moving slowly, here’s why

There’s still $147 billion available in the second round of the Paycheck Protection Program, according to a report by the Small Business Administration released on Saturday.

The second round’s $310 billion has taken significantly longer to be reserved by business borrowers after becoming available about a month ago, compared to the first round’s $349 billion, which ran out in 13 days.

So, why is that happening? Local lenders offer two reasons: federal officials instituted policies that discouraged larger, publicly-traded businesses from taking up funds that were approved for struggling small businesses; and the PPP’s restrictive requirements have made many small business borrowers reconsider accepting the funds.

The PPP provides 2.5 times monthly payroll costs to businesses with the promise of loan forgiveness so long as they use at least 75% on payroll expenses and no more than 25% on certain overhead costs. Employers would have to take on any amount that goes beyond these limitations as a 1% loan with a two-year maturity.

Approximately 35% of respondents to a May 18 survey by the National Federation of Independent Business (NFIB) said they plan to have some portion their PPP money turn into a loan instead of seeking full forgiveness.

The first round of $349 billion ran out in two weeks, with an average nationwide loan size of $206,021. The $310 billion second round has been live for approximately one month since April 27. The average round two loan size was $115,503, a $90,618 decline from the first round, as of the SBA’s May 23 report.

More than 4.4 million PPP loans totaling $511 billion have been approved as of May 23, according to the SBA, with 155,396 PPP loans totaling $20.5 billion for Pennsylvania businesses.

Luke Bernstein, chief retail officer for Shippensburg-based Orrstown Bank, said larger business borrowers with a finance executive or in-house finance department had access to resources that made for a speedier loan approval in the opening days of the program. Independent contractors and self-employed borrowers had to wait for April 10 to begin applying for their smaller-sized loans.

“The first wave were a lot of businesses that had accountants, attorneys, maybe in-house finance departments, helping them in advance, who knew this was coming, had an application ready, wanted to get it in and they were off and running,” Bernstein said.

In the first 28 hours of the second round, which commenced on April 27, lenders approved $50 billion because they had built up 10-days’ worth of applications from borrowers who had been waiting during the 10-day interim between rounds, according to Bernstein.

Since then, the SBA’s reports indicate the funds have been approved at a much slower rate.

“That first day of round two we worked all night to get our people approved,” said Mike Keim, president of Univest Bank, a Souderton-based firm with a commercial lending division in Lancaster. “As it turns out, we had a lot more time than we thought we did.”

One major factor in the slow pace of round two loan approvals is the disincentives the SBA established to discourage larger, publicly traded companies from reserving PPP loan money, and encourage smaller businesses to take advantage of the funding.

Publicly traded companies were pressured to give back their PPP loan amount and use other sources of income to raise capital. Federal officials also announced ahead of round two that loans of $2 million or more would be subject to an audit by SBA and Treasury Department officials, according to Secretary Steven Mnuchin.

During round one, loans of more than $2 million accounted for 27% of all approved loans. But by May 23, they only accounted for about 20%.

Univest Bank saw millions of dollars come back from PPP borrowers who decided the newest guidelines from the SBA for loans larger than $2 million weren’t worth the risk, Keim said.

“All those myriad of factors went into effectively pushing down the loan size on the second round, as well as some people dropped out and some people repaid under the safe harbor rules what they had previously taken out in round one, and when they repaid that money, it went back into the available pool,” he said.


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