The easing of rules for how and when small business owners must spend billions in forgivable federal loans is good news, but there are still some hurdles to clear when it comes to earning that forgiveness, lending experts said.
Even with the changes in the Paycheck Protection Program signed into law by President Trump on Friday, the forms business owners must fill out to prove they've adhered to the rules are still far too complex, said Colin Barrett, president of the Tennessee Bankers Association. That organization is lobbying with other state associations for a simplified form for loans under a certain amount.
"They're expecting those forms to take three hours to fill out, and I think they're being conservative," Barrett said. "Think about what that is like for your average small business owner that is looking at something they've never seen before."
Lynn Chesnutt, director of the Tennessee Small Business Development Center, said his organization is working with HHM CPAs to host webinars for small business owners that walk through the forgiveness forms in detail.
"We need experts to start talking people through it," said Chesnutt, who added that even a member of his staff who has an accounting and small business background found the documents daunting.
"She was overwhelmed by the application," he said. "It does need to be simplified."
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In Tennessee:85,617 Paycheck Protection Program loans for $8.8 billion as of May 30There are just under 600,000 small businesses in Tennessee, according to the Small Business AdministrationIn fiscal 2019, the SBA made $313 million in loans to 550 businesses in TennesseeIn the U.S.Nearly 4.5 million Paycheck Protection Program loans for more than $510 billion as of May 30There are 30 million small businesses in the U.S., according to the Small Business AdministrationIn fiscal 2019, the SBA made $28 billion in loans to 58,000 businesses in the U.S.
New rules governing the Paycheck Protection Program give small businesses 24 weeks rather than eight to spend the money, reduce the percentage that must be spent on payroll from 75% to 60%, and extend the repayment period for businesses that don't qualify for forgiveness from two to five years. The rules also give small business owners until the end of the year to bring back their employees, rather than the original deadline of June 30.
"For probably 80% of these businesses, it's a better fit," Chesnutt said.
Jessica West, the owner of the Skin and Brow Room, received her loan about a month ago, and welcomes the extra time and flexibility to spend the money, she said. Her shop was closed for nearly two months, and paying employees to work wasn't the best use of the aid, West said.
"Now that we're actually open, I am able to utilize those funds to generate revenue instead of just creating hours that aren't going to generate revenue for the business," she said.
While the business is open again, it's slow, and she only has about five people working, including herself, when she would normally have eight to 10.
"It's good that I'm able to not have more people than I need, and I'm able to use those funds for a longer term to offset getting through this," West said.
Kenny Dyer, Chattanooga president for Pinnacle Bank, said the extra time to spend the funds means the program will work for small businesses the way it was intended to.
"Twenty-four weeks is huge," he said. "That gives those companies that are slowly gearing up the ability to bring back people without having to just turn around and lay them off."
The Paycheck Protection Program launched April 3, offering $349 billion in forgivable loans to small businesses to help them weather the devastating economic impact of the coronavirus crisis. After less than two weeks, the money ran out, and Congress sent through another $310 billion in funding.
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Find out moreThe Tennessee Small Business Development Center and HHM CPAs is hosting a free online seminar to walk through the Paycheck Protection Program forms from 2:30 to 4 p.m. Thursday. The program will go line-by-line through the application and attendees will be able to ask questions.. Registration for the free zoom seminar is required and may be made at https://clients.tsbdc.org/workshop.aspx?ekey=30400055No cost.
The rush for the funds created unprecedented pressure on the 5,454 banks that handled the loan applications. In two months, the program distributed 18 times the fiscal 2019 Small Business Administration loan volume in the U.S., and 28 times the fiscal 2019 loan volume in Tennessee.
Now that demand has slowed, about $100 billion in funds still remain, and it's possible that applications to the program will pick back up because the forgiveness rules have been eased, Barrett said.
"We might see an uptick in demand," he said.
Some businesses were so concerned about the hurdles to gain loan forgiveness that they returned the money. On May 3, there were $8.95 billion in Paycheck Protection Program loans to small businesses in Tennessee. By May 30, that number had dropped to $8.8 billion.
"Some of the small businesses were getting nervous, and some returned the funds," Barrett said.
Now that she has more time and flexibility to use the federal loan, West said she just has one major concern.
"What happens after those funds run out?" she said. "What if business continues to decline if there's another resurgence?"
Contact Mary Fortune at mfortune@timesfreepress.com or 423-757-6653. Follow her on Twitter at @maryfortune.
Staff photo by Troy Stolt / Pinnacle Bank Chattanooga President Kenny Dyer sits for a portrait on Tuesday, March 24, 2020 in Chattanooga, Tenn.