PPP Loan

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The devastating consequences of a pandemic affected the local community, especially small businesses in the Rio Grande Valley. Some small businesses had to close their doors due to the pandemic shutdown while others struggled to continue afloat. Jorge Garcia, who has had his fire and safety business for over 15 years, witnessed firsthand the challenges of keeping his business open and the struggles of paying his employees during the pandemic. “Many of the businesses that we service closed and it was very difficult to find new clients, and I didn’t want to let go of my employees who have worked with me for more than 10 years,” he said.

Garcia learned about the Paycheck Protection Program through a friend. He was directed to the Small Business Administration website, where he printed the application and took it to his bank. It ended up being a lengthy and frustrating process, Garcia said, because of additional paperwork the bank required.

The U.S. Department of the Treasury website announced that the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) created the PPP loan April 3, 2020, and was implemented by the Small Business Administration. According to the SBA website, the PPP loan was designed to help small businesses with funds to continue paying their employees, mortgage interest, rent, utilities, uninsured property damage during 2020, certain supplier costs, and expenses for operations. The PPP loan interest rate is 1%. Loans prior to June 5, 2020, have a two-year maturity and loans after June 5, 2020, have a five-year maturity. Sole proprietors, independent contractors, and self-employed businesses who employed less than 500 employees were eligible to apply for the PPP in 2020 and in 2021.

Hugo Hinojosa, senior vice president of Freedom Bank, explains that small business owners were able to apply for the PPP loan through the SBA website tool that matches the borrower with a lender. “The application is available online for the borrower to apply for the first draw or second draw,” Hinojosa said. “Borrowers who applied in 2020 were eligible to reapply for a second loan in 2021 to help business owners continue paying their employees for at least two-and-a-half months.”

According to the SBA website, the borrower can find a lender using the SBA tool search or download the form and contact a lender. First-time borrowers must select the first draw application form. Second-time borrowers who used the full amount, had no more than 300 employees, and had their gross income reduced by 25% in 2019 and 2020 must select the second draw application form.

As of March 7, 2021, a report from the PPP reported nationally a total of 2,409,105 loans were approved with a total of 5,198 lenders. The report includes changes made by the Biden administration for the 2021 PPP loan. Individuals who filed Form 1040 and Schedule C may use their gross income instead of net profit to calculate their loan amount.

“This new change allowed banks to use a new funding calculation for sole proprietors, independent contractors, and self-employed individuals to qualify for more financial support,” Hinojosa said.

As this new calculator was based on gross income, the calculation worked as follows: A borrower whose gross income in 2020 was $100,000 would be divided by 12 for monthly payroll and then multiplied by 2.5 plus the Economic Injury Disaster Loan. This particular borrower would therefore qualify for $20,833.

“This loan helped many in the Valley during this pandemic,” Hinojosa said.

Other small businesses were not quite so lucky. The Small Business Majority report from January 2021 reported 59% of small business owners’ revenue declined during the pandemic shutdown and continue to be down as of this year. The report also mentions that 57% of small business owners found the application process difficult and only 33% received the full amount of the loan requested.

The McAllen Chamber of Commerce Business Status Survey #4 (part 1) reports that the Valley’s “economy collapsed during the second quarter in 2020 and in the second half of 2021 there was a four percent growth in GDP.”

“The PPP loan was established in 2020 as a result of the pandemic for small businesses and sole proprietorships to cover their payroll and it has been well received in the community,” said Omar Quintanilla, senior vice president of corporate banking at Frost Bank and McAllen city commissioner, District 3. “Although this is a loan, it is not based on the borrowers’ credit. So far there is no information whether the loan will be extended or of any additional funding, but businesses are encouraged to apply as soon as possible and contact their bank for any deadlines and changes.”

Borrowers must first demonstrate that they were adversely affected by the pandemic. The second determining factor for the loan is based on the average monthly payroll of the business. There was an additional funding period this year for a second loan that was extended to May 31.

“There is a major change from last year to this year and it is very difficult,” Quintanilla said. “Many borrowers who applied for the second draw must show proof of an income reduction of 25% drop in revenue to be eligible. Another change in the PPP loan application was that restaurants can borrow up to 3.5 times the average monthly payroll.”

Restaurants in particular took the biggest hit during the pandemic. That means that they benefit the most from this type of assistance.

“Although this is a 1% loan and borrowers would need to pay it back, the federal government established a PPP Loan forgiveness application for borrowers to fill out and request for the loan to be forgiven,” Quintanilla added. “The loan is forgivable if the loan was used for the intended purposes. Once the borrower fills out the form with the proper documentation, submits it to their lender, the SBA reviews the loan and the SBA approves the forgiveness part.

“The PPP loan helped businesses and employees dramatically in our community.”

Janie Briones