Biden Administration Proposes Changes To PPP Aimed At Increasing Small Business Access To Capital


Data released by the SBA as of Feb. 21, 2021, show that the top PPP lender has now processed 139,559 SBA-approved PPP loans by serving the smallest businesses, especially self-employed individuals and minority and women-owned businesses. Over 98% of its approved loan applications come from businesses with fewer than 20 employees.

The reforms to the Paycheck Protection Program (PPP) announced this week by the Biden-Harris administration are welcome news.

Increasing access to the PPP for the hardest-hit and underserved small businesses is imperative. The administration appears to recognize this fact with this new set of changes. Importantly, using a digital platform has been critical to the PPP’s success in the second round. Digitizing loan applications is the best strategy for serving the broadest range of small business clients, especially for those business owners who do not have access to so-called traditional forms of financing through a bank or credit union. While the PPP is helping literally millions of small businesses, the reforms implemented by the Biden-Harris administration will further increase the flow of capital to the smallest businesses.

1.    Instituting a 14-day wait period. For two weeks, starting Wednesday, Feb. 24, only companies with fewer than 20 employees can apply for PPP relief. The administration states that 98% of small firms have fewer than 20 employees. These are Main Street businesses that anchor neighborhoods and create jobs in their local communities. Many of them are also run as sole proprietorships or by independent contractors, who depend on their business to keep food on the table for their families.

2.      Giving sole proprietors, independent contractors, and self-employed individuals more financial support. Companies such as home repair contractors, beauticians, and small independent retailers, make up a significant part of the economy. Among them, companies that do not have employees are 70% owned by women and people of color, according to data cited by the administration in their announcement. Yet many have been excluded from the PPP because of how the loans were previously calculated. The administration is establishing a $1 billion set aside within PPP funding for businesses without employees located in low- and moderate-income areas. It will revise the loan calculation formula for these applicants so that they can qualify for more relief.


3.    Eliminating a restriction that prevents small business owners with prior non-fraud felony convictions from obtaining PPP funding. Currently, a business is ineligible for a PPP loan if it is at least 20% owned by an individual who has either: 1) an arrest or conviction for a felony related to financial assistance fraud within the previous five years; or 2) any other felony within the previous year. To expand access to the PPP, the administration will adopt reforms in the PPP Second Chance Act that is currently pending in Congress that eliminate the one-year look-back.

4.    Ending a restriction that prevents small business owners who are delinquent on their student loans from obtaining PPP relief. Currently, the PPP is not available to any business with at least 20% ownership by an individual who is currently delinquent or has defaulted within the last seven years on a federal debt, including a student loan. Millions of Americans are delinquent on student loans, including a disproportionate number of Black borrowers.

5.    Letting non-citizen small business owners who are lawful U.S. residents use Individual Taxpayer Identification Numbers (ITINs) to apply for PPP funding. Lawful U.S. residents may access the PPP, but there has been inconsistency in access for ITIN holders, such as Green Card holders or individuals who are in the U.S. on a visa. The SBA will address this by issuing clear guidance in the coming days that otherwise eligible applicants cannot be denied access to the PPP because they use ITINs to pay their taxes.

Additionally, the Biden-Harris administration announced its continuing commitment to enhancing the PPP application process to ensure accountability by:

·        Addressing waste, fraud, and abuse across all federal programs. Unlike the previous round of the PPP, loan guaranty approval is now contingent on passing the SBA’s fraud checks, Treasury’s “Do Not Pay” database, and public records. The SBA now also conducts manual loan reviews for the largest loans in the PPP portfolio and a random sampling of other loans.

·        Promoting transparency and accountability. The SBA is working to improve the PPP loan application, to streamline the process, and to encourage self-reporting of demographic data in order better illustrate the impact the PPP is making across various population segments.

·        Improving the Emergency Relief Digital Front Door. The SBA is updating its website to help more applicants find resources, understand, relief options and complete applications.

·        Conducting stakeholder outreach to learn more about challenges and opportunities in implementing current emergency relief programs. The President has spoken with many small businesses owners in recent weeks to understand their concerns about relief programs. 

·        Enhancing the current lender engagement model. The SBA is launching a new initiative to deepen its relationships with lenders. This will increase opportunity for lenders to provide recommendations and drive resolution of issues in a more streamlined way.

While enhanced anti-fraud measures are designed to keep taxpayer money secure from abuse and waste, in some instances they are causing challenges for legitimate borrowers who are blocked due to these fraud checks. The SBA and the administration must still provide guidance on resolving these errors, as this remains a primary obstacle for business owners and lenders alike when processing PPP applications. Until these challenges are addressed comprehensively, some deserving borrowers, including many from minority communities, will continue to lack access to the PPP.

Small businesses account for 44% of U.S. GDP, create two-thirds of the new private sector jobs in the economy, and employ nearly half of America’s workers. Millions of small businesses are owned by women, immigrants, African Americans, and other people of color. Many are struggling to survive in the wake of the COVID-19 pandemic and the resulting economic crisis.

The latest round of PPP funding is providing meaningful relief to business owners who struggled to secure funding last year in the first round of the program. According to government figures:

  • The share of funding going to businesses with fewer than ten employees is up nearly 60%;
  • The share of funding distributed through Community Development Financial Institutions (CDFIs) and Minority Depository Institutions is up more than 40%; and
  • The share of funding going to small businesses in rural areas is up nearly 30%.

Despite these outcomes, many businesses remain hindered by SBA validation errors and other anti-fraud measures designed to prevent misuse of taxpayer funding. Errors such as these have led to processing delays for business owners and in many cases remain unresolved at the time of writing.

Greater collaboration between the SBA and lenders is needed to simplify the application process for business owners and resolve validation errors. Until the SBA validation errors are resolved comprehensively, these errors will continue to prevent many legitimate borrowers from receiving SBA approval. Resolving these errors must be a priority; the survival of the smallest and hardest-hit businesses depends on it.

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