Small Businesses Owe Billions In Unforgiven PPP Loans

Small Businesses Owe Billions in Unforgiven PPP Loans | Word & Brown

Source: Word & Brown, by Alex Strautman

The Paycheck Protection Program (PPP), launched as part of the federal government’s Coronavirus Aid, Relief, and Economic Security (CARES) Act to aid to small businesses coping with the impact of COVID-19, ended on May 31, 2021. However, nearly 350,000 small businesses that received a PPP loan have not had their loans forgiven. Another 380,000 loans have been only partially forgiven.

A recent analysis by Bloomberg News says total PPP debt amounts to $28 billion, with most loans for less than $25,000. During 2021, the Small Business Administration (SBA) reported distributing more than $400 billion to more than six million businesses through the PPP, Restaurant Revitalization Fund, Shuttered Venue Operators Grant, COVID Economic Injury Disaster Loan (EIDL), and targeted and supplemental advance programs.

Employers receiving a PPP loan during the first funding round had until August 30, 2021, to apply for loan forgiveness. However, advocacy groups, community leaders, and business owners say the process for seeking forgiveness is burdensome for businesses. Indeed, the loan forgiveness application, SBA Form 3508S (07/21), is seven pages and requires considerable documentation regarding how PPP funds were used.

The SBA boasted in 2021 that it had streamlined its forgiveness application processes. In a press release, the SBA said, “a borrower of a participating lender can now complete most or all of a forgiveness application using a computer or, for the first time, their smartphone. On average, users are able to complete and submit directly to the SBA their applications in just six minutes, and most receive their forgiveness decisions within a week from the date of submission.“

More than six months after the forgiveness application deadline, 50+ business and advocacy groups are still pushing the SBA, Treasury Department, and Congress to forgive automatically PPP loans of $25,000 and less. They argue that many sole proprietors face challenges with income, payroll, and expense documentation. They are also seeking rescission of a rule that denied forgiveness to businesses making a good-faith effort to comply with forgives rules.

In other PPP-related news, the Justice Department continues to go after individuals and businesses that have misused funds related to CARES assistance. In March, charges were filed in Louisiana against an Amtrak employee who sought approximately $89,000 in PPP funds, even while working full-time.

Sentencing also took place last month for two Michigan residents who obtained nearly $1.5 million in PPP funds. Authorities have recovered more than $1.123 million traced to the fraudulently obtained funds through a parallel civil asset forfeiture action. California convictions include seven individuals in Los Angeles sentenced in November for PPP and EIDL fraud in excess of $20 million, as well as a separate action last year against a Temecula business owner who sought and obtained $7.25 million in federal assistance.

Small Businesses Face $2 Billion Cut From Covid-19 Relief Fund

Small businesses face $2 billion cut from Covid-19 relief fund - KTVZSource: CNN Politics, by Katie Lobosco

Congress is considering taking back some of the money it authorized last year for a small business aid program in order to pay for new Covid-19 vaccines, testing and therapeutics.

The Biden administration asked Congress to provide more money weeks ago, warning that funds are needed to continue fighting Covid-19. But lawmakers have disagreed on how to pay for the request. Senate Republicans have insisted any new funding be fully offset by repurposing money from Covid-19 relief legislation that Congress previously passed.

A bipartisan deal reached in the Senate earlier this month would fully offset the $10 billion legislation by reallocating a variety of Covid-19 relief funds that were previously authorized by Congress but have not yet been spent.

A majority of those unspent funds were left over from programs that have already expired. But the deal also proposes taking about $2 billion from a $10 billion small business program that hasn’t disbursed any funds yet.

“There’s a big difference between funds that have not been used and funds that have yet to be deployed,” said Katie Kramer, vice president of the Council of Development Finance Agencies, a national association dedicated to supporting economic development.

The program in question, known as the State Small Business Credit Initiative, provides money to states to help create small business financing programs. It’s a long-term aid program that is meant to help small businesses have access to capital as the economy rebounds, instead of providing emergency grants and loans like other Covid-19 aid programs.

Funding cut threat puts state plans on hold

After months of planning how best to use the money, the threat of the cut is putting states’ plans on ice.

Like many states, Oregon was ready to launch several small business financing programs as soon as it receives the money from the Treasury Department. If the funds are cut, it could mean big delays.

“The frustrating thing for us is that we’ve been engaging with communities for months, letting them know these resources are coming,” said John Saris, finance manager at Business Oregon, the state’s economic development agency.

He was expecting Oregon to receive more than $83 million, enough to potentially reach 1,000 businesses. But if Congress rescinds some of the money, the state could see a reduction by as much as $20 million, leaving it with resources to help just 700 small businesses.

“With these cuts, we will have to totally revamp our plans. Some programs might go away completely – that’s how dire this is,” Saris said.

The State Small Business Credit Initiative allows states to create a variety of financing programs for small businesses and startups emerging from the pandemic, including venture capital programs and loan guarantees to lenders, for example.

Governments are required to match some of the federal funds with private capital, and Treasury expects that the programs should generate small business lending and investment of at least 10 times the federal contribution amount.

That means that a $2 billion cut in federal funding from the State Small Business Credit Initiative could result in more than a $20 billion reduction in private investment for small businesses, according to the Council of Development Finance Agencies.

States are still waiting for the money

The State Small Business Credit Initiative was originally created in 2010 to help small businesses recover from the Great Recession. The American Rescue Plan Act, which was signed into law by President Joe Biden in March 2021, reauthorized the program and provided $10 billion in new funding.

States were required to submit applications to Treasury in February and tribal governments have until May 11. But no applications have been approved yet and none of the money has been disbursed by Treasury.

A Treasury official told CNN that the agency’s rollout of the State Small Business Credit Initiative “has been consistent with the statute and included outreach, input, and engagement with states, tribes, lenders, small businesses and experts, as well as technical assistance to ensure programs are set up to deploy these funds effectively.”

The official noted that Congress created some new elements for the program that weren’t included in 2010, including the addition of allocations for tribal governments and socially and economically disadvantaged business owners, along with a new technical assistance program.

Bill remains in limbo

After weeks of negotiation on the Covid-19 relief bill, lawmakers left for a two-week recess without voting on the bill. The latest hurdle came as Republicans demanded a vote on an immigration amendment to restore Title 42, a pandemic-era rule that allowed immigrants to be returned immediately to their home countries citing a public health emergency.

The bill calls for repurposing several buckets of previously approved Covid-19 relief funds to pay for the new health spending, in addition to the money it would take back from the State Small Business Credit Initiative.

The bill would use nearly $2 billion left over from the Shuttered Venues Operators Grant program, which gave money to live music venues, theaters and museums that were forced to shut their doors for some period of time due to the pandemic. The program stopped taking applications in August. It awarded more than $14 billion in grants.

The bill would also repurpose about $900 million that is remaining for the Covid-19 Economic Injury Disaster Loan advance program, which allowed some small businesses to receive up to $15,000 that did not need to be paid back. The program would be left with enough money to accommodate pending loan modifications and the recently announced six-month deferment on loan payments, according to a summary of the bill provided by Senate Democrats.

More than $2.3 billion would come from the Aviation Manufacturing Jobs Protection Program, which provided funding to businesses to cover up to half of their payroll costs for certain categories of employees for up to six months. In return, those businesses were required to make several commitments, including to not involuntarily furlough or lay off employees within that group during the same six-month period.

The bill would also use remaining unspent money in the Higher Education Emergency Relief Fund, totaling $500 million. That program provided funds to colleges so that they could give emergency financial aid grants to students whose lives were disrupted by the pandemic. Another $1.6 billion of unspent funds that were previously given to the US Department of Agriculture would also be repurposed.

Congress could take up the new Covid-19 relief legislation next week after lawmakers return from recess. Spokespeople for Senate Majority Leader Chuck Schumer and Republican Sen. Mitt Romney of Utah, who was negotiating the funding deal for Republicans, did not return emails from CNN requesting comment for this story.

Small Business Owners Predict a Retirement Crisis

An overwhelming majority of small-business owners say that the country is in the midst of a retirement crisis. The online study, commissioned by Nationwide and conducted by Harris Poll, found that 84% of small business owners say American workers are facing a retirement readiness crisis. However, 60% of small-business owners say that their own employees are on track to retire. Sixty-three percent of small business owners say it’s important for a business owner to provide retirement benefits, but only 34% offer these benefits to their employees.

Small businesses play an outsized role in helping workers prepare for retirement. According to the U.S. Small Business Administration, small businesses make up 99.7% of all employers, employ 49% of all private-sector workers, and create 63% of the new private-sector jobs in the country.

Joe Frustaglio of Nationwide said, “We’ve reached a point in this country where people are starting to pay attention to the fact that a retirement savings problem exists. Employers need to provide access and education, and workers need to take advantage of what’s available to them.”

Sixty-seven percent of small-business owners who offer retirement benefits, including 401(k)s, plan to increase their contribution to employees’ 401(k) plan. Thirty percent of small-business owners who don’t offer retirement benefits plan to offer these benefits in the future. If that happens, 54% of small-business owners will offer their employees retirement benefits.

Half of small-business owners who plan to start offering retirement benefits say they will do so because they expect sales or revenue to increase in the next 12 to 24 months, and 32% say the U.S. economy will improve in the same timeframe. Small business owners who offer 401(k) plans and say they will increase contributions have an even more positive outlook: 56% expect company sales or revenue to increase in the next 12 to 24 months, and 53% say the U.S. economy will improve in that same period.

“In spite of recent market volatility, economic indicators are pointing toward continued growth for the U.S. economy in 2016. Small business owners should see Main Street benefit from the economic stability that we’ve enjoyed during the last few years,” said David Berson, senior vice president and chief economist at Nationwide.

Twenty-five percent of small-business owners who plan to offer retirement benefits in the future say the ACA has made health benefits less attractive to employees, and 18% say the ACA has decreased company health care costs. Thirty-three percent of small-business owners who offer retirement benefits and plan to increase company contributions to their employees’ 401(k) plans say the ACA has made health care benefits less attractive to employees, and 30% say the ACA has decreased the company’s health care costs. “Lower health care costs means small business owners have the option of contributing more to their employees’ retirement.

As the ACA makes health care benefits less relevant to small business employees, business owners have to find a new way to recruit and retain employees. There is mounting evidence that 401(k) plans are filling that role,” said Frustaglio.

Fifty-nine percent disagree that retirement benefits are not important for attracting and retaining employees. Forty-two percent of those who plan to increase contributions say that their company’s 401(k) plan is now more important for attracting and retaining employees as a result of the ACA. Twenty-four percent of small business owners who will offer retirement benefits in the future say their company’s 401(k) plan is now more important for attracting and retaining employees because of the ACA.

“As the health care insurance marketplace becomes more commoditized, employers are looking for new tools to attract and retain key employees, Employers who are using 401(k) plans as a recruitment tool are ahead of the game because we’re seeing more company owners asking how they can do this,” said Frustaglio.

He adds that small business owners who are not offering a 401(k) plan to their employees should talk to a financial advisor about finding a plan that’s right for their employees and business. Eighty percent of small business owners say they cannot compete with a Fortune 500 company’s benefits, and 48% say they could afford a customized 401(k) plan to meet their small business needs.

Frustaglio said, “Small companies not being competitive with large corporations in terms of employee benefits is just not true in today’s world. No matter the size of the business, from one with 33,000 associates like Nationwide to the corner grocery store, today’s 401(k) plans allow for customization and access to the same options with the same tools for all employees.”

Frustaglio recommends that small business owners who offer retirement benefits to their employees do a plan review every year with their advisor. The review should include an analysis of the plan’s components and investment options for their employees.

Healthcare is a Top Concern for Small Businesses

While 76% of small business owners are stable or improving in the economy, more than half have concerns about weaker economic times ahead, according to a survey by Dealstruck. Small business owners agree that the most pressing issues in 2016 are taxes (56%) and healthcare (46%). And while 72% of liberal business owners say that the minimum wage does not affect their business and is too low, a surprisingly high percentage of conservatives agree. Only 20% of conservative business owners say that the $7.25 minimum wage is too high.

Small businesses are generally feeling positive about their own growth and the economy, but are not applying for SBA financing (only 6% of respondents have ever applied), and 57% have concerns about their economic future. Millennial small business owners are faring better (95% are stable or improving), are more likely to have applied for SBA financing (16%), and are less concerned about the economy in the near term (47%).

Small business owners are generally not affected by the Affordable Care Act (ACA) and are not opposed to its continuation. Fifty-three percent say the ACA will not affect their businesses; 18% expect a positive effect; and 45% say it should be maintained (16% have no opinion). Twenty-six percent of Millennials (under 30) say that the ACA has had a positive effect on their businesses. Still, more than half of small businesses don’t offer healthcare to employees

Health Care Costs Are A Major Problem for Small Business

Small businesses are facing huge health care cost increases while struggling to navigate the Affordable Care Act (ACA), according to a survey by the National Small Business Assn. (NSBA). “The smallest businesses are in worse shape than they were just one year ago,” said NSBA president and CEO Todd McCracken. Just 41% of firms with five or fewer employees offer health benefits, down from 46% one year ago.”

Offer rates dropped among all small firms too; 65% of small firms offer health insurance, down from 70% one year ago. One in five said that premium increase exceeded 20% during their most recent renewal. While cost is the number one driver of whether a small business will offer health insurance, complexity and administrative burden cannot be underestimated since the overwhelming majority of small business owners handle their firm’s health benefits. Just nine percent of small-business owners plan to purchase health insurance through the Small Employer Health Options Program (SHOP) exchange or an individual exchange, down from 14% last year. The average small business owner spends as much as 13 hours a month on ACA compliance

Benefits Remain a Key to Retention and Recruitment

Small-business owners looking to recruit and retain top employees need to pay close attention to their benefit offerings, according to a survey by Aflac. A majority of workers employed in small businesses are willing to consider a job with slightly lower pay, but better benefits. Half of potential job-changers say that improving their benefit package could keep them right where they are.

The battle for talent is getting tougher with the unemployment rate at 5.3%. Thirty-four percent of decision-makers expect to hire full-time employees in the next 12 months, and 28% expect to hire part-time employees. The study found the following:

  • 59% of workers at small companies are at least somewhat likely to accept a job with slightly lower pay, but better benefits.
  • 49% of small-business employees who agree, at least somewhat, that they’ll be looking for jobs in the next year say improving their benefit package is one thing their employers could do to keep them in their jobs.
  • 87% of employees agree, at least somewhat, that voluntary insurance is part of a comprehensive benefit program.

Small-business owners appear to be listening. Twenty-two percent of small-business employers offer voluntary insurance compared to 18% in 2014. Small-business employees who are enrolled in voluntary benefits are more likely to be very satisfied or extremely satisfied with their jobs and their benefit packages. They are also more likely to say that their benefit package meets their family’s needs.

Small Businesses Must Gather Data Now for Obamacare 2016 Deadline

Companies with 50 to 99 employees will fall under the federal healthcare mandate starting January 2016, but they should prepare now. Small companies should begin tracking data to help them determine compliance and which employees are entitled to an offer of coverage in 2016. “Unfortunately, no magic bullet exists in the form of affordable software that gathers data in one tidy place; nor is the government ready with a form. The required reporting is detailed. Leaving the record keeping to the 11th hour will be too cumbersome for smaller companies…Planning facilitates developing the best ACA strategy,” says Finny Varghese, an expert on the ACA

Here’s what companies need to do according to Lexus/Nexus:

• Classify workers. Coverage is required for full-time employees, those working 30 or more hours weekly, and full time equivalents. FTEs are calculated as the number of part-time workers multiplied by the number of hours worked per month divided by 120. Companies may discover their total full-time count falls below the range.

• Define standard measurement periods for determining employee classifications. There will be one look-back period for ongoing employees and measurement periods for each new hire. Tracking this year provides a beta test for 2016 data and could guide classifications.

• Detail each employee who gets coverage under current healthcare policy. This information includes the duration of any waiting period, months of eligibility and coverage, premium for the lowest cost option for employee-only coverage, and whether coverage meets the government standard.

Small businesses slow to embrace SHOP exchanges

Small businesses are not flocking to health insurance exchanges set up under the Affordable Care Act in the same way individual consumers are, brokers and business owners say. Though certain small businesses can get tax credits for offering employees coverage through the Small Business Health Options Program, some say choices are too limited and the credits are too low. The Wall Street Journal (tiered subscription model) (1/7)

The right insurance mitigates risk

A variety of insurance options are available to small businesses to protect against potentially catastrophic events. Some of the most important coverages for small businesses include professional liability, worker’s compensation, property and business interruption insurance. Entrepreneur online (12/30)

Study: Small employers are less knowledgeable about health care law

Among U.S. businesses, employers with fewer than 50 employees are the least likely to understand the options available to them under the Affordable Care Act, according to research from the Transamerica Center for Health Studies. The survey found that only about 60% of these employers know about the health exchanges that are available to them. Inc. online (free registration) (5/13)

Last Updated 05/25/2022

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