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Small business owners missed thousands of dollars in loans when P3 funding ran out prematurely

When the Paycheck Protection Program ran out of funding in the first week of May – weeks before its May 31 deadline – it was a huge surprise to the staff at El Museo del Barrio in New York City.

The upper Manhattan Latino cultural institution was counting on a second loan from the program to recover from the severe impact of the pandemic, which shut down the museum for months and forced it to cancel two major fundraising galas.

“This raises many questions about how we will end our exercise,” said Ana Chireno, director of government and community affairs at the museum. “We’ll have to get back to the drawing board at some point.”

El Museo del Barrio first applied for a second PPP loan in March after calculating the numbers and deciding that it was a good fit for this program, instead of the Shuttered Venue Operators grant (initially companies couldn’t apply the two.)

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That loan was twice turned down, the museum said, likely due to a problem as he was applying as a nonprofit, even though he applied to Cross River, the same bank he was applying for. had used for his first-round loan last year.

In April, museum officials re-applied to other financial institutions, believing they had more than enough time to be approved and funded by May 31.

Even though the museum is now open again with limited capacity, the funding would have been of great help. Last year, the institution received a P3 loan of approximately $ 480,000 – 2.5 times the monthly payroll for the fifty or so employees – which helped it stay afloat.

“The PPP loan changed everything,” said Patrick Charpenel, executive director of El Museo del Barrio. “It gave us a lot of stability – we were able to keep all of our staff and found a way to be an active institution through our online business.”

The end of PPPs

Millions more borrowers are in the same situation after the $ 292 billion allocated to the second P3 round ran out weeks before the May 31 deadline.

At Womply, a fintech that connects borrowers and lenders, there were 2.5 million requests in their system, said Toby Scammell, founder and CEO of the company. Of those, 1.6 million are in the hands of lenders who cannot send them to the Small Business Administration, which oversees the program.

Customers Bank had tens of thousands of applicants in its pipeline, while non-bank lender Fountainhead had more than 90,000 who were shut down when the PPP money ran out.

“It was a huge shock,” Scammell said. “I don’t think anyone in the industry is expecting this change last week.”

The paycheck protection program has been a lifeline for many businesses affected by the coronavirus pandemic. Created last year by the CARES law, it provided repayable financing to companies that spent loans primarily on payroll. In January, the program reopened for a new cycle and enabled some businesses to obtain second-draw loans.

The program was also marred by frustration, especially in the second round, when increased fraud checks resulted in more error codes and longer processing times. In addition, the many changes have forced borrowers and lenders to scramble.

In February, the Biden administration further expanded the program’s eligibility and changed the formula for calculating the loan for sole proprietorships. Then, in March, Congress voted to extend the program from March 31 to May 31 to meet continued demand.

“The program never really took hold,” said Rohit Arora, managing director of Biz2Credit, an online loan broker.

Small businesses are still hurting

Other borrowers have encountered problems applying in the second round, which means they have run out of funding.

This year, the program has been a “total disaster,” according to Anthony Bonelli, president and owner of Bonelli & Associates, a bookkeeping and accounting firm in New York City.

Bonelli & Associates was able to secure an initial PPP loan of around $ 25,000 and also helped many clients in the process, he said. But the second round was not that easy. His claim – and those of many clients – was still pending when the SBA ran out of funds.

“They just seemed to change the rules every day,” Bonelli said, adding that changing the rules and the extra hoops to go through made the process long and complicated. He started his candidacy in early March.

I don’t think anyone in the industry expected this change last week.
Toby Scam
Founder and CEO of Womply

“I’m trying to give everyone, you know, a reason not to pop a joint the whole process,” he said, discussing why it was so difficult this time around.

Lenders also said a lack of guidance from the SBA made things more complicated.

“We could have stopped applications and we could have better informed our clients,” said Arora, adding that Biz2credit had slowed down but not stopped new applications before the program deadline.

More transparent information would have helped some borrowers who delayed tax filing applications first, or took some time to download all documents, he said.

Other options available

Granted, there is still some hope for companies that missed the general pool – the SBA has set aside around $ 8 billion for applications from community financial institutions. Until the end of May, or until the money set aside is exhausted, the program will only accept new applications from these organizations.

This means that companies could cancel their pending loans and reapply with such an institution in the hope of being able to secure some of the financing.

There are other SBA programs that businesses can apply to. If eligible, businesses can apply for the New Restaurant Revitalization Fund or the Shuttered Venue Operators grant program. And, the SBA still offers economic disaster loans.

But some businesses do not qualify for the new, more targeted programs and may already qualify for EIDL loans.

Carey Yazeed, who runs Shero Productions LLC., A change management agency based outside of New Orleans, applied for a second PPP loan in mid-March.

When the PPP funding ran out in May, she was still trying to correct an error code on her application. Kabbage, the duty officer she applied through, put her social security number on the documents instead of her employer identification number, she said.

She missed about $ 12,000 in funding, she estimates. She is not eligible for new grant programs.

“I tried not to cry,” she said. “It wasn’t a mistake on my part.”

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