Ronnie Hilburn is counting on the Payroll Protection Program’s (PPP) second-round of funding as a lifeline to keep her business alive.
Hilburn has owned Ronnie Renee’s Day Care in Detroit’s Linwood/Clairmont neighborhood for 25 years. The day care has been closed since March 20, just days before Michigan Gov. Gretchen Whitmer ordered that all daycare facilities be closed due to the COVID-19 Global Pandemic.
That meant Hilburn and her two employees were out of work.
“After that we were left to figure out what we can do,” Hilburn said. “It’s kind of hard when you’re self-employed and you don’t have income coming in.”
Last week’s passage of the additional funding bill by the U.S. Congress that was signed by President Donald Trump, will provide $484 billion in additional funding for the PPP.
Some of the funds are earmarked for small minority-owned businesses to provide forgivable loans amidst the economic hardship caused by the COVID-19 pandemic. The loans are designed to cover two-months of payroll for small businesses whose workers have been idled.
There is $60 billion specifically set aside for minority-owned and rural small businesses. There will be $30 billion earmarked for each group, said Rob Scott, SBA Great Lakes Regional administrator.
That’s what Hilburn is hoping to take advantage of, having missed out on the first round of funding. When Hilburn approached a couple of banks the first time around, she was told they were no longer accepting applications because the funds were depleted.
In fact, the first round of funding was snapped up in just two weeks.
When the PPP launched, the SBA approved a total of 1.6 million loans to small businesses amounting to $349 Billion.
The maximum amount that can be borrowed under the PPP is $10 million, Scott said. In the first round of the program, 74 percent of the loans were approved for $150,000 or less. The average loan approved was $206,000.
“In the first round we approved in 14 days what we would normally do in 14 years,” Scott said.
In Michigan, there were 43,438 PPP loan applications approved in the first round, valued at $10.3 billion, Scott said. The state ranked eighth in terms of PPP loan approvals and ninth in total dollar amount of those loans.
So, how can Detroit’s minority-owned small businesses qualify for PPP?
Scott said businesses can qualify with:
- 500 employees or less
- For-profit; 501c3 nonprofit and individual franchisees, i.e. Subway, McDonald’s, Starbucks
- Use 75 percent of the PPP loan for employee payroll, salary, retirement and healthcare benefits.
- Use the remaining 25 percent for rent, payment on mortgage interest and utilities.
The loans are forgivable – meaning small business owners don’t have to repay them – provided the banks are able to verify the funds have been used as required.
So, where can Detroit’s minority-owned businesses go to borrow money?
There are 5,000 financial institutions facilitating the PPP loans, Scott said. Potential borrowers don’t have to be customers of those lending institutions.
Among those institutions are community banks and credit unions that are designated to facilitate loans set aside for minority-owned, underserved and rural small businesses.
First Independence Bank, based in Detroit, is one of the community banks that minority-owned small businesses can turn to for PPP loans.
First Independence COO Jim Dunn said it is working to help minority-owned businesses get access to the second round of PPP funding.
“Yes, definitely,” Dunn said. “We’re seeing more customers that didn’t get served in the first round.”
Dunn added that small business owners like Hilburn have an opportunity to secure a PPP loan.
“The key is to have the application put together and have all the necessary information,” Dunn said.
However, some of the information required for the application may present challenges for some small businesses.
Unlike larger companies that have resources of accountants or payroll services that track and break down payroll, the smaller companies would have to review their own records. But it can be done.
The PPP loans are based on the 2019 payroll calendar. That means an applicant will have to use their average monthly payroll from 2019 to figure out how much they can borrow.
For example: a business’s payroll amounted to $12,000 over 12-months. The average monthly payroll would be $1,000.
The applicant then would multiply it by 2.5, which would equal $2,500. That would be the amount they could borrow to cover the two-month period designated by the PPP loan guidelines.
The PPP doesn’t require a minimum loan amount, Dunn said.
Dunn added that small businesses shouldn’t have a problem securing a loan if it can support its application with the basic paperwork, such as:
- Documentation of payroll for 2019
- Form 941 that businesses file quarterly with the IRS
- Drivers’ license
In addition, they could not have defaulted on a previous SBA loan or
be listed as a terrorist on the Office of Foreign Asset Control (OFAC) List.
The other critical point small businesses need to remember is that the loans are only forgivable if the funds are used correctly. Meaning that 75 percent went to payroll and 25 percent was spent on rent, utilities or mortgage interest.
The PPP requires the banks facilitating the loans to verify after two months that the money was spent as stipulated, Dunn said.
Otherwise, small businesses will have 18 months to repay the loan at 1 percent interest. If the business defaults on the loan, the bank takes the hit.
“It’s not a free ride for the banks certainly,” Dunn said.
Tim Mackay, executive vice president of consumer banking for Level One Bank in Farmington Hills, said it also expects to be approached by small businesses that were turned away by the larger banks in the first round.
“It’s an important opportunity for small businesses to work with the local community banks,” Mackay said.
He added that community banks like Level One are equipped to deal with local small businesses.
Meanwhile, Hilburn has found another bank to apply for one of the PPP loans. She is hopeful that she can secure one of the loans to continue paying her employees, including herself and keep her business afloat.
“You can’t get discouraged if you need the money,” Hilburn said. “I just don’t want to go under. I’m not ready to retire – I can’t afford to.”