Confused by the federal government’s small business loan program? You’re not alone. Here’s your guide

WASHINGTON – How long does it take for a small business to get a Paycheck Protection Program loan aimed at keeping them afloat through the COVID-19 pandemic? Are lenders required to process PPP applications on a first-come, first-served basis? And how are independent contractors treated?

Restaurant owners, retailers and scores of other small business owners continue to wrestle with questions about PPP, which was created in a massive  relief package known as the CARES Act. The legislation’s aim was to prop up the nation’s 30 million small businesses walloped by the social distancing remedies to the coronavirus crisis. The Trump administration has said the program can help small firms, a pillar of the U.S. economy, keep workers on their payrolls.

The Small Business Administration program offers firms employing 500 or fewer workers low-interest loans of up to $10 million to cover their costs while they’re shuttered.

The portion of the loan that covers eight weeks of expenses does not have to be paid back if at least 75% of the money is spent keeping or rehiring workers. Otherwise, it carries a 1% interest rate and must be paid back within two years.

While the SBA has approved more than 1.6 million loans totaling almost $350 billion since April 3, businesses point to a myriad of challenges in the PPP’s rollout: technical glitches, an avalanche of requests, a lack of response, and an exhaustion of money.

Congress is poised to add an additional $320 billion to the PPP after loan requests outstripped the initial $349 billion in funding. But the program continues to stir confusion among many of the businesses it’s designed to help.

USA TODAY reporters Ledyard King and Paul Davidson interviewed several experts to answer some of those questions:

How long does it take to get a loan?

Some small businesses have been approved in as quickly as a few hours while others waited a couple of weeks, says Ami Kassar, CEO of MultiFunding, a small business loan adviser. Many still haven’t gotten cleared. Once an applicant is approved, the program requires that they receive the money within 10 days but that doesn’t always happen, Kassar says. While some approved small business owners have gotten the cash in two or three days, others waited up to two weeks or are still waiting.

Why is it taking so long?

About 1.6 million small businesses have sought PPP funding, overwhelming bank and SBA online systems. Smaller community banks seem to be processing loans more quickly than larger national banks that have been flooded with requests, Kassar says.

If I applied for a loan in the first round and didn’t get an answer, do I have to reapply for the second round?

No. You’re already in the queue. You may be near the front if you applied shortly after the program got up and running April 3, but that depends on whether your application is complete and accurate and how your lender may be prioritizing loan applications.

Could the owner of a nail salon or small restaurant who was drawing a paycheck from their business prior to the crisis apply for unemployment for themselves while still seeking a PPP loan to keep the business going?

Yes, as long as the loan is used exclusively to keep the other employees on the payroll, according to Holly Wade, director of research for the National Federation of Independent Business. Depending on their situation, it might make more sense to roll their salary into the loan request (and not take unemployment) if it help them meet the 75% payroll threshold so they don’t have to repay the loan.

Could a business owner struggling to reach the 75% payroll threshold provide raises or bonuses to workers simply to qualify?

A: Yes, Wade said, as long as no worker covered by the loan earns more than $100,000 on an annualized basis as spelled out in the application. What they can’t do is count independent contractors in their payroll numbers, she said.

When does the clock start running on these eight-week loans?

The day the money is deposited into the business’ bank account, said Paul Merski with the Independent Community Bankers of America. Businesses that want to delay using the money right away because they don’t think they’ll be able to open in eight weeks don’t have that option.

Can the money be applied retroactively to pay past wages or other costs?

No. Both Merski and Wade said SBA rules require the money be spent prospectively.

Could a small business making masks, hand sanitizer or other products in high demand during the crisis receive a PPP loan even though they’re making a profit?

Yes. The primary criteria for getting the loan is the company must have employed no more than 500 workers for whom it paid salaries and payroll taxes or paid independent contractors and that it was operating on Feb. 15. Loss of revenue is not a requirement though the application form requires businesses to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations.” Congress was trying to get the money to small businesses quickly, without making SBA verify the financial status of each applicant.

The average small business has fewer than 10 employees. So why does it seem larger companies and franchises are getting priority in loan approvals over mom-and-pop stores?

This is a big criticism of the program. Although the SBA must process the loans on a first-come, first-served basis, there’s no such requirement for lenders. Some big banks have been accused in lawsuits of giving priority to requests for larger loans that carry heftier fees and come from bigger small businesses that have deeper relationships with the bank and are more likely to purchase other products and services. To partly address the issue, $60 billion of the new funding is to be set aside for community-based lenders, smaller banks and credit unions to assist smaller businesses.

What about businesses in high-rent areas, such as Manhattan or San Francisco, where high rents and other expenses make it especially tough to meet the 75% threshold?

The program doesn’t make an exception and the pending bill doesn’t either. Restaurants have been especially vocal that the PPP parameters hurt heavy cash-flow businesses like theirs that depend on steady revenues to maintain their payrolls whenever they reopen.

Are self-employed workers or independent contractors eligible for a PPP loan?

Yes. The PPP allows both to apply. If they want it to be forgiven, Wade said any salary they draw cannot be equal to the entire size of the loan and must be tied to net profits from last year (not what they paid themselves). But both are at a disadvantage because the window for submitting their applications didn’t start until April 10 (a week after most small businesses) so they are further behind in line for the assistance.

What about business owners worried they might not survive even with a PPP loan? Would they still have to pay back the part of the loan that’s not forgivable if they close forever or go bankrupt?

Probably not, according to Wade. “There’s no personal guarantee of collateral requirement to this loan,” she said. “If they have to declare bankruptcy, the loan presumably goes away.” However, if they stay in business but their sales are reduced, they are responsible for repaying the loan, Kassar says.