August 10, 2021

With PPP Over, What’s Next for Business Borrowers?

Now that funds from the Paycheck Protection Program (PPP) were exhausted as of May, businesses that are still reeling from the economic impact of the pandemic will have to look for other sources of funding. 

According to Forbes Magazine, credit unions increased their loan approval rate from 20.3% in April to 20.4% in May 2021. Other non-bank lenders inched up slightly. Institutional lenders approved 23.6% of funding requests in May, up from 23.5% in April. Meanwhile, alternative lenders approved 24.3% of funding applications in May 2021, up from 24.0% in the month prior.

Alternative lenders saw a significant increase in approval rates in May while at the same time handling an ever-larger number of loan requests, thanks to the shift towards online finance in the small business space. With the conclusion of PPP, banks are focusing on forgiveness and may not be ready to ramp up small business lending that is not government-backed.

Many borrowers will have to turn to non-bank sources of funding, including asset-based lenders, institutional lenders, and credit unions. These lenders are all starting to respond to the demand, and many will see their approval rates rise as customers who used to get loans from a bank are now looking to alternative sources of financing.

A survey by the Federal Reserve last year found 82% of small employers applied for a PPP loan, and 77% of those who applied received all the money they asked for. Nearly half of those firms still reduced the number of workers they employed.

Other relief available for small businesses

Even as vaccinations continue and the U.S. eases restrictions, small businesses are still struggling. There are other relief programs available through the Small Business Administration (SBA), including some that also give grants to businesses.

The SBA’s Restaurant Revitalization Fund began accepting applications in May. The program was established in March as part of the $1.9 trillion stimulus package and was allocated $28.6 billion in funding. In the first 21 days, the SBA only approved applications from small businesses owned by women, veterans or socially and economically disadvantaged people.  

There are worries that the funding won’t be enough to help all the businesses that still need support. In the first two days of the program, 186,200 restaurants, bars and other eligible businesses applied for funding, according to a White House report.

In April, the SBA also reopened applications for the Shuttered Venue Operators Grant Program, which has $16 billion in funding for theater owners and other live venue operators who had to close during the pandemic. The SBA is approving applications in tiers, addressing those with the most revenue loss first.

These programs, as well as alternative lending sources, are especially important for small businesses now that the PPP concluded a run that drew praise as well as criticism in some quarters. Economists as well have been divided over how effective PPP loans have been in preserving various businesses.  

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Great Lakes Business Credit is a strong non-bank alternative financing company which works tirelessly across the eastern U.S. to customize solutions for businesses facing a financial crisis.