Through separate legislative actions, the federal government has made several low-cost loan programs available to small businesses that are struggling from coronavirus-related financial stress. The Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program offer businesses with under 500 employees a pathway to low-cost financing to cover payroll, mortgage interest/rent, accounts payable, and utility expenses. Together, the two programs have $356 billion in financing capacity available to support small businesses.
As of April 13th, nearly $248 billion of the $349 billion made available to banks through the PPP had been lent to small businesses. More than 1 million loans have been made by the 4,664 lenders participating in the program, with 70 percent of all loans being for less than $150,000. According to the American Bankers Association, almost half of the $248 billion has gone to four sectors: construction; professional, scientific, and technical services; manufacturing; and healthcare/social assistance. Businesses in the Wholesale Trade category, which includes HARDI distributor members, have received more than $14 billion in loans (accounting for 5.79 percent of the total).
Demand for PPP loans has been extraordinarily high, pushing the capacity and infrastructure of the banking system to its limits. Consequently, a large percentage of the small businesses who have tried to apply for PPP loans have been unsuccessful in submitting their applications. A survey conducted by the National Federation of Independent Businesses (NFIB) and generating 884 responses shows that 28 percent of small businesses attempting to apply for a PPP loan were unsuccessful. Of those 28 percent, 68 percent were unsuccessful in applying because their banks had not begun accepting PPP loan applications; 9 percent were not able to find a participating bank (likely due to their own bank not participating), and 5 percent were told by their banks that they had reached their loan acceptance limit. The EIDL program, which was authorized by Congress to lend $7.3 billion to small businesses, received applications from 50 percent of the small businesses participating in the NFIB survey. Just 4 percent of those businesses applying for an EIDL have been approved.
PPP will reach its financing limits this week absent any new funding from Congress, meaning many small businesses in need of low-cost financing will be unable to get it through this program. While EIDL remains an option for many small businesses (albeit with different eligible uses than PPP), the turnaround on PPP loans has been faster than EIDLs and HARDI encourages those in need of capital to complete a PPP loan application while they still have a chance. In the meantime, any distributor experiencing cash flow challenges should consider utilizing this Cash Flow Model from Indian River Consulting Group to help project your expected revenues and cash flows over the next 12 months.