Despite Its 1% Interest Rate, the PPP Loan Isn’t a Catch-All for Covering Small Business Costs During the COVID-19 Crisis

In the first round of the Paycheck Protection Program (PPP), the Small Business Administration doled out 1.6 million loans worth about $350 billion. But countless businesses in the most affected states didn’t capture any funding at all. 

The PPP is just one part of the historic $2.2 trillion relief package passed March 2020.  Inefficiencies in distribution have been a major point of controversy, spurring Congress to replenish funds with another $310 billion—most likely not for the last time. 

But, for lenders, the capital needs of small businesses don’t begin and end with public aid. Due to the way PPP loan forgiveness is structured, these funds simply aren’t a comprehensive solution for many businesses that have had to close down. As a result, additional loan products will be needed to keep the doors open and the lights on. Here’s why—along with some ways to maximize your impact during this high-demand, high-stakes period. 

Don’t write off small business customers simply because they’re “covered” by PPP

One PPP loan is permitted per small business, and it’s limited in application. For example, PPP funds aren’t supposed to be used for things like equipment repairs or replacements. And yet, for many small businesses, equipment replacements form the brunt of operational costs—so much so that some lenders specialize solely in equipment financing. Think about your local pizza joint. Without a working oven, they lose customers and revenue. Equipment precedes revenue—in turn, equipment may dictate business viability. No oven, no pizza: no business. 

Of course, by themselves, these limitations don’t spell out certain doom. But it does illustrate our point—that, despite its 1% interest rate, the PPP loan isn’t a catch-all for covering small business costs and operations during the COVID-19 crisis. The funds are also firmly limited to an amount equivalent to 2.5 months’ average payroll costs in 2019. Traditional loans from community banks will need to fill in the gaps. As such, you’ll need to be equipped to distribute capital to a wider range of customers—both efficiently, and without meeting your borrowers face-to-face.  

How do you do that? 

Through digital lending. 

Adopt accessible, efficient, and cost-effective solutions to meet small businesses capital needs

Providing small businesses with the capital they need to survive will require additional (traditional) loans. But it won’t require funding them in traditional ways—in fact, digital lending offers the best, and sometimes only, solution. 

Before this crisis, many small business owners didn’t have time, capacity, or resources to visit a branch and apply for a loan in-person. Now, even if they have the time, many branches are closed or operating under limited hours—making face-to-face lending impossible. Even if some of your branches are open, personal interaction is a risk that many customers won’t be able or willing to take. Even once branches stay consistently open, digital lending will remain the new default—because it’s just good business practice all around. Getting on board isn’t just more profitable—it’s more sustainable, and could be what carries you smoothly into the era of post-COVID-19 lending. 

In addition to providing an accessible, efficient, and cost-effective solution to small business lending, digital lending processes are integral to reaching small business customers currently being overlooked—for various reasons—by the PPP. Well-known businesses—like Shake Shack and the LA Lakers, to name a couple—and businesses with stronger, pre-established banking relationships are having an easier time securing PPP funding, while local, lesser-known small businesses that have historically struggled to establish relationships with banks are falling behind. Digital lending channels can level the landscape—lowering the cost of small business lending for you, and making applications (and capital) more accessible for them. 

The bottom line? Even if your small business customers are the last to secure PPP funding, offering accessible channels for more traditional capital will enable them to continue to meet operational demands—and to survive, or even grow, in the aftermath of this pandemic.