Small businesses at starting gate for round two of the Paycheck Protection Program

Small businesses and bankers: On your marks, get set — and don’t go just yet.

At precisely 8:30 a.m., Monday, the U.S. Small Business Administration will fire the starting gun on the second round of loan processing under its Paycheck Protection Program, which has received another $320 billion.

“We encourage all approved lenders to process loan applications previously submitted by eligible borrowers and disburse funds expeditiously. All eligible borrowers who need these funds should work with an approved lender to apply. Borrowers should carefully review PPP regulations and guidance and the certifications required to obtain a loan,” SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin said in a joint statement Friday afternoon.

PPP loans are intended to help small businesses struggling because of the pandemic cover payroll expenses for their employees through June. If 75% of the loan proceeds are used to cover employee costs, the loans will be forgiven.

Borrowers claimed $349 billion in PPP loans in just under 13 days. Between April 3 and April 16, Colorado lenders facilitated 41,635 loans worth nearly $7.4 billion, in what was a bumpy process.

Some lenders started on day one, while others delayed taking applications a few days, and some had to get approval to even make SBA loans. Some banks took every application they could, even if they couldn’t process them all. Others got overwhelmed, stopped to catch up, and then started again.

With the next round of $320 billion in stimulus signed into law Friday by President Trump, the expectation is that demand for the second disbursement will be even more intense.

“Most agree this next round of funding, even though it is a significant amount, again will go very quickly. Most believe this will be out in a matter of days,” Kelly Brough, president and CEO of the Denver Metro Chamber of Commerce, told members on a webinar Thursday.

Thousands of small businesses and self-employed workers applied but didn’t get an SBA approval before the money ran out. They and their bankers have had more than a week to square up and process applications. They are ready to sprint once the SBA reopens.

“We are just gearing up trying to make sure those applications we have in our queue are ready to go,” said Thomas Ogaard, president and CEO of the Native American Bank in Denver. “We will be there.”

The bank, which has a focus on serving Native American communities, is experienced at making SBA loans. It got 57% of its applicants through to an SBA approval. Employees kept working long hours to get the rest ready on the assumption there would be a second round. The bank also took in new customers who were frustrated with their current banks.

Ogaard estimates there are enough applications backed up and ready to go that the next round of money will be exhausted as fast as the lenders can submit into the SBA system, called E-tran. It literally will be a race.

The SBA could have in theory reopened E-tran on Friday. But the first round of lending generated several complaints, including allegations that bigger customers received preferential treatment and that public companies and large restaurant chains who had other ways to raise money received millions in loans. The SBA tightened things up, which is what required the delay until Monday.

“Complaints have been lodged over the structure, administration and fairness of the SBA programs, which permitted public companies to qualify for the small business loans intended for companies with fewer than 500 employees,” Denver law firm Brownstein Hyatt Farber Schrek, said in a note.

More than 100 public companies, including about a half dozen in Colorado, received approval for PPP loans, according to the Wall Street Journal. Those firms have come under strong pressure to return the money, including from the U.S. Treasury Department.

Broomfield-based DMC Global received approval on April 14 for a $6.7 million PPP loan, with the intent of using the money to cover payroll costs for its 306 U.S. employees. DMC Global said it was below the 500 employee cap the SBA uses to define a small business and met all requirements. But it also has a market capitalization of $367 million.

“While the PPP program allows for loans of up to $10 million for all companies with as many as 500 employees, subsequent guidance from the SBA made after DMC had received the proceeds of the loan states that public companies may not be eligible for the program,” DMC Global said Thursday in a press release. “In view of these new guidelines and to avoid any further disputes at a time when the business environment is the most difficult it has seen, the company has repaid the loan.”

Aside from clamping down on big company borrowers, the second round of PPP reserves $60 billion for small financial institutions, including $30 billion for those with less than $10 billion in assets and $30 billion for those with $10 billion to $50 billion in assets.

The theory is that smaller banks and community lenders work with smaller businesses, and won’t have the temptation that the largest banks had to give more help to their bigger customers, whose failures would directly impact loan write-offs.

Denver-based DreamSpring, a nonprofit microlender formerly known as Accion, is among the small lenders who will benefit. DreamSpring said it issued 21 loans totaling $591,000 to Colorado small businesses at an average of $28,000 each in the first round. It estimates 122 jobs were saved.

“DreamSpring is seeking to have even greater impact with this next wave of funding,” it said.

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