Masked visitors see art in the El Museo del Barrio’s Estamos Bien exhibition. The Museo has reopened, but with limited capacity.
Michael Palma Me
When the paycheck protection program ran out of funds in the first week of May – weeks before May 31 – it came as a big surprise to staff at El Museo del Barrio in New York.
The Upper Manhattan Latino cultural institution was counting on a second loan from the program to recover from the grave impact of the pandemic that closed the museum for months and meant two major fundraising gala events had to be canceled.
“It raises a lot of questions about how we’re going to end our fiscal year,” said Ana Chireno, director of government and community affairs for the museum. “We have to go back to the drawing board at some point.”
El Museo del Barrio first applied for a second PPP loan in March after putting the numbers together and deciding it was a good fit for this program, in lieu of the closed venue operator grant (initially, companies couldn’t apply for both.)
More of Invest in you:
You can still tap free college money – here’s how
How I learned to invest in stocks – and so can you
College students gain work experience as social media brand ambassadors
That loan has been denied twice, the museum said, likely due to a glitch because it was applying for a nonprofit despite being applied for from Cross River, the same bank that used it for its first-round loan last year.
In April, museum officials reapplied to other financial institutions, thinking they had more than enough time to be approved and funded before May 31st.
Although the museum is now reopening with limited capacity, the funding would have been of great help. Last year, the facility received around $ 460,000 in PPP loan – 2.5 times the monthly payroll for the 50 employees – which helped keep it afloat.
“The PPP loan changed everything,” said Patrick Charpenel, executive director of El Museo del Barrio. “It gave us a lot of stability – we were able to keep all of our employees and through our online activities we found a way to be an active institution.”
The end of PPP
Millions of other borrowers are in the same position after the $ 292 billion allocated to the second round of PPP was depleted weeks prior to May 31st.
At Womply, a fintech company that matches borrowers with lenders, there were 2.5 million applications on its system, said Toby Scammell, founder and CEO of the company. Of that, 1.6 million are in the hands of lenders who cannot send them to the Small Business Administration that oversees the program.
The retail bank had tens of thousands of applicants in the pipeline, while the non-bank lender Fountainhead had more than 90,000 that were stopped when the PPP money ran low.
“It was a huge shock,” said Scammell. “I don’t think anyone in the industry expected this change last week.”
The Paycheck Protection Program has been a lifeline for many companies affected by the coronavirus pandemic. Founded last year by the CARES Act, the company granted forgivable funds to companies that spent loans primarily on payroll. In January the program reopened for a new round and enabled some companies to obtain secondary drawing loans.
The program was also frustrated, especially in the second round, when increased fraud checks resulted in more error codes and longer processing times. Additionally, due to the numerous changes, borrowers and lenders have struggled to keep up.
In February, the Biden administration further expanded the program’s eligibility and changed the credit calculation formula for sole proprietorships. In March, Congress voted to extend the program from March 31 to May 31 to meet continued demand.
“The program never really caught on,” said Rohit Arora, managing director of Biz2Credit, an online loan broker.
Small businesses still hurt
Other borrowers struggled to apply for the second round, which meant they missed funding.
That year, according to Anthony Bonelli, president and owner of Bonelli & Associates, an accounting and bookkeeping firm in New York, the program was an “absolute disaster”.
Bonelli & Associates was able to secure a first-round PPP loan for about $ 25,000 and also helped many clients with the process, he said. But the second round wasn’t that easy. His application – and that of many customers – was still pending when the SBA ran out of funds.
“They seem to have changed the rules every day,” Bonelli said, adding that changing rules and adding additional frames to skip through made the process long and complicated. He started his application in early March.
I don’t think anyone in the industry expected this change last week.
Founder and CEO of Womply
“I try to give everyone a reason not to blow a seal on the whole process,” he said, referring to why it was so difficult this time.
Lenders also said a lack of guidance from the SBA made things more complicated.
“We could have stopped applications and better informed our customers,” said Arora, adding that Biz2credit slowed, but not stopped, new applications before the program deadline.
More transparent information would have helped some borrowers who were delayed filing their tax returns first or took some time to upload all of the filing, he said.
Other options available
Of course, there is still hope for companies that missed the general pool – the SBA has allocated approximately $ 8 billion for applications from community financial institutions. Until the end of May or until the money set aside is used up, the program will only accept new applications from these organizations.
That means companies could cancel their outstanding loans and reapply to such an institution in the hopes of getting some of the funding.
There are other SBA programs that companies can apply for. If eligible, companies can apply for the new Restaurant Revitalization Fund or the Shuttered Venue Operators Grant Program. And the SBA still offers catastrophe loans for economic damage.
However, some companies do not qualify for the new, more targeted programs and may already have EIDL loans in place.
Carey Yazeed, who runs Shero Productions LLC., A change management agency based out of New Orleans, applied for a second PPP loan in mid-March.
When the PPP funding expired in May, she was still trying to fix an error code on her application. Kabbage, the servicer she applied to, had her social security number written on the paperwork instead of her employer identification number, she said.
She missed an estimated $ 12,000 in funding. She does not qualify for the new scholarship programs.
“I tried not to cry,” she said. “It wasn’t a mistake on my part.”
SIGN IN: Money 101 is an 8-week financial freedom learning course delivered to your inbox weekly.
CHECK OUT: How to make money doing creative side businesses, from people who make over thousands on sites like Etsy and Twitch Grow with acorns + CNBC.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.