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Why some businesses aren't applying for forgivable PPP loans

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There was still $128 billion in PPP funds available as of June 20.

With a deadline looming, fewer than one in seven Michigan small businesses have been approved for forgivable loans through the federal Paycheck Protection Program (PPP), created to help businesses survive the economic impact of the coronavirus pandemic.

Why aren’t more businesses applying for loans that could end up being free money?

Confusion about the rules and difficulty navigating the application process has discouraged some business owners, according to Sarah Russell, a certified public accountant at the Michigan-based accounting firm Clayton & McKervy.

“The rules have changed so frequently and so fast through this entire program that it’s been a bit overwhelming for small businesses,” Russell said. “A small business owner has to focus on running their business. They're not focused on interpreting what the legislation means. And so if they don't have advisers who are helping them sort through and interpret the guidance that has come out, they're certainly at a disadvantage.”

Russell says the PPP loan forgiveness requirements are quite favorable to borrowers, but those regulations weren’t issued until months after some businesses got PPP loans.

“Overall, (the PPP) probably kept a wave of bankruptcies from happening,” said Lisa Cook, an economist at Michigan State University. “I still think that there are minority business owners and very small businesses that might not have the bandwidth yet to … apply for these loans.”

The deadline for small businesses to apply for a PPP loan is 11:59 p.m. Tuesday, and as of June 20, the program still had $128 billion in funding available. With the loan forgiveness requirements clarified, Russell says applying for forgivable PPP loans would be worth it for most businesses.

“The only businesses that should not apply for the PPP are businesses that look like they’re going to go out of business, and therefore won’t spend the money,” Russell said.

More than 116,000 Michigan businesses have been approved for PPP loans, totaling more than $15.8 billion. Some businesses that applied when much of Michigan’s economy was still shut down essentially paid their workers to “do nothing.”

According to a 2019 report, there are more than 873,000 small business across the state.

“Businesses that apply (for PPP) today are at an advantage because now they get to spend the money when they’re reopening rather than the businesses that got it in April …. while they were closed,” Russell said.

Uncertainty about PPP regulations during the first few months of the program may have contributed to businesses giving up on trying to apply. Russell said that at the beginning of the PPP program, some of the smallest businesses that don’t typically have lending relationships with banks had a harder time finding a bank to work with them to get a PPP loan.

The PPP was quickly created, and in terms of governing regulations, Small Businesses Administration Great Lakes Regional Administrator Rob Scott has said the government was “building the plane as we fly it.”

President Trump signed the PPP Flexibility Act expanding and clarifying loan forgiveness eligibility for PPP borrowers on June 5. Scott said the change in law could result in a “huge uptick” in PPP loan applications and processing.

However, according to the Small Business Administration, there was approximately $130 in PPP funding still available as of June 6. As of June 20, an SBA spokesperson said $128 billion in PPP funding remained.

Tyler Scott is the weekend afternoon host at Michigan Public, though you can often hear him filling in at other times during the week. Tyler started in radio at age 18, as a board operator at WMLM 1520AM in Alma, Michigan, where he later became host of The Morning Show.
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