SBA, Biden Administration PPP Reform Fact Sheets (2021.02.22 - SBA PPP Reforms and Actions Fact Sheet Fact Sheet - American Small Business Owners-508)

Summary

Fact sheet on the Biden-Harris Administration’s steps toward equitable access to relief for America’s Mom-and-Pop Businesses. It states that small businesses account for 44 percent of U.S. GDP and create two-thirds of net new jobs, and that the pandemic and resulting economic crisis have left more than 400,000 small businesses permanently shuttered. It describes an SBA exclusivity period for PPP applications from businesses and nonprofits with fewer than 20 employees, starting Wednesday, February 24, 2021, at 9 am ET and ending Tuesday, March 9, 2021, at 5pm ET. It also lists a $1 billion set aside for non-employer Schedule C applicants and changes affecting felony records, student loan delinquency and ITIN holders.

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Building on a Month of Strong Results, Biden-
Harris Administration Takes Steps to Further
Promote Equitable Access to Relief for
America’s Mom-and-Pop Businesses
Small businesses power the nation’s economy and our communities. They
account for 44 percent of U.S. GDP, create two-thirds of net new jobs, and employ
nearly half of America’ workers. Now, millions of Main Street small businesses –
especially Black- and Brown-owned small businesses – are struggling to make
ends meet. The COVID-19 pandemic and resulting economic crisis have left more
than 400,000 small businesses permanently shuttered and millions more have lost
substantial revenue. The Biden-Harris Administration is committed to delivering
equitable relief to hard-hit small businesses so they can rehire and retain workers,
safely reopen, and deliver the essential goods and services our communities
depend on.

Over the last month, the Small Business Administration (SBA) has made equitable
access to the latest round of Paycheck Protection Program (PPP) funding a top
priority. The changes have resulted in a significant increase in funding to
underserved groups compared to the first month of the PPP in April 2020:
    • For businesses with fewer than ten employees, the share of funding is up
        nearly 60 percent
    • For businesses in rural communities, the share of funding is up nearly 30
        percent
    • The share of funding distributed through Community Development
        Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) is
        up more than 40 percent

But President Biden and Vice President Harris believe we can still do better –
particularly at delivering relief to small businesses in low- and moderate-income
(LMI) communities, whose share of funding remains stagnant compared to the
first round of PPP.
Today the Biden-Harris Administration is announcing several reforms to further
target relief to America’s mom-and-pop businesses and to ensure relief funds are
distributed equitably. These reforms include a 14-day period, starting on
Wednesday, during which only the smallest businesses will be able to submit PPP
applications, as well as several critical changes to eliminate barriers that
disproportionately harm minority-owned, women-owned, Main Street, and other
underserved small businesses.

Specifically, on Wednesday, February 24, 2021 at 9 am ET, the SBA will establish
a 14-day, exclusive PPP loan application period for businesses and nonprofits
with fewer than 20 employees. This will give lenders and community partners
more time to work with the smallest businesses to submit their applications, while
also ensuring that larger PPP-eligible businesses will still have plenty of time to
apply for and receive support before the program expires on March 31st.

The SBA is also announcing four additional changes to open the PPP to more underserved
small businesses than ever before. While these changes are being implemented, SBA will
work with community partners to improve the emergency relief “digital front
door” and conduct extensive stakeholder outreach. And, SBA will strengthen its
relationships with lender partners to advance equity goals, deliver funding efficiently, and
prevent fraud, waste, and abuse. The SBA will:
    • Allow sole proprietors, independent contractors, and self-employed
       individuals to receive more financial support by revising the PPP’s funding
       formula for these categories of applicants;
    • Eliminate an exclusionary restriction on PPP access for small business
       owners with prior non-fraud felony convictions, consistent with a
       bipartisan congressional proposal;
    • Eliminate PPP access restrictions on small business owners who have
       struggled to make student loan payments by eliminating student loan debt
       delinquency as a disqualifier to participating in the PPP; and
    • Ensure access for non-citizen small business owners who are lawful U.S.
       residents by clarifying that they may use Individual Taxpayer Identification
       Number (ITIN) to apply for the PPP.

A critical goal from Congress for the latest round of PPP was to reach small and
LMI businesses who have not received the needed relief a forgivable PPP loan
provides. Congress set a $15B set-aside for small and LMI first draw borrowers.
With existing policies, the current round has only deployed $2.4B to small LMI
borrowers, in part because a disproportionate amount of funding in both wealthy
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and LMI areas is going to firms with more than 20 employees. The less than 20
exclusivity period combined with the changes to expand access for sole
proprietors, ITINs, returning citizens, and student loan debt will help us achieve
Congressional goals.

The actions announced today will help to lay the foundation for a robust and
equitable recovery for small businesses across the country.

Expanding access to emergency COVID-19 relief programs
through equity-focused reforms

Prior rounds of COVID-19 economic relief helped millions of small businesses stay
afloat and keep employees on the payroll. However, too many minority-owned
businesses and Main Street businesses found themselves left out while larger,
well-connected businesses accessed programs quickly. To better support these
small businesses, the SBA, U.S. Department of the Treasury, and U.S. Department
of Education are implementing reforms to expand access to the Paycheck
Protection Program.

   • Prioritize the smallest businesses for forgivable loans through the
     Paycheck Protection Program. While 98 percent of small businesses have
     fewer than 20 employees, these firms receive just 45 percent of PPP funding
     and represent roughly 90 percent of the firms that have received PPP
     support so far this year. To address this persistent problem and ensure
     those newly eligible can access relief, the SBA will initiate an exclusivity
     period of 14 days for businesses and nonprofits with fewer than 20
     employees. The exclusivity period will begin on Wednesday, February 24,
     2021, at 9 am ET and end on Tuesday, March 9, 2021, at 5pm ET. All
     applications already submitted by lenders to the SBA before the start of the
     exclusivity period will still be processed by the SBA. During the two-week
     period, the SBA will not accept new applications from lenders for
     businesses and nonprofits with 20 or more employees, so that lenders can
     focus on serving smaller companies. Once the exclusivity period ends,
     lenders will be able to submit PPP loan applications for all eligible
     businesses and nonprofits again.

   • Provide equitable funding for sole proprietors and independent
     contractors. Many sole proprietors, independent contractors, and self-

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   employed individuals are structurally excluded from the PPP or were
   approved for as little as $1 due to the loan amount calculation. These
   businesses make up a significant majority of all businesses and include
   cleaning services, home repair contractors, personal care businesses, and
   small independent retailers, among other examples. While businesses with
   employees calculate their eligibility for PPP loans based on employee
   payroll costs, those without employees must calculate eligibility based on
   the IRS 1040 Schedule C entry for “net profit,” which deducts items such as
   depreciation, healthcare costs, rent, and utilities. This calculation often
   limits the amount of relief sole proprietors and independent contractors
   can receive, hurting many of the most underserved small businesses.
   Approximately 70 percent of non-employer firms are owned by women and
   people of color, compared to 40 percent of employer firms. In addition, 95
   percent of Black-owned firms and 91 percent of Latino-owned firms are
   non-employers.

   To address this problem, the SBA will revise the loan calculation formula to
   match the approach authorized by Congress in the Economic Aid Act for
   small farmers and ranchers that use IRS 1040 Schedule F. New Schedule C
   filers will be able to calculate their PPP loan amount using the gross income
   line on their Schedule C form. The SBA will also establish a $1 billion set
   aside for non-employer Schedule C applicants located in LMI census tracts.
   To ensure this new formula minimizes the risk of waste, fraud, or abuse, the
   SBA will review a sample of applications from high-income non-employer
   businesses for compliance with the statutory attestation that the loan
   request is necessary due to the uncertainty of current economic conditions.
   This new policy will take effect during the first week of March.

• Ensure fair access for returning citizens. Numerous studies show that
  criminal background checks for employment opportunities and relief
  programs disproportionately hurt people of color. Currently, a business is
  ineligible for PPP if it is at least 20 percent owned by an individual who has
  either: (1) an arrest or conviction for a felony related to financial assistance
  fraud within the previous five years; or (2) any other felony within the
  previous year. To expand access to the program, the SBA will adopt
  bipartisan reforms included in the PPP Second Chance Act, co-sponsored
  by Senators Ben Cardin (D-MD), Rob Portman (R-OH), Cory Booker (D-NJ),
  and James Lankford (R-OK), which would eliminate the second restriction
  (the one-year look-back) unless the applicant or owner is incarcerated at
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   the time of the application. This new policy will take effect during the first
   week of March.

• Eliminating student loan debt as a barrier to PPP. Recent research shows
  that two in five student loan borrowers are likely to experience default.
  Black and Latino student loan borrowers running non-employer businesses
  are nearly twice as likely as their white peers to be behind or in collections
  on their student loans. Currently, the PPP is not available to any business
  with at least 20 percent ownership by an individual who is delinquent on a
  student loan. Working with the Departments of the Treasury and Education,
  the SBA will remove this restriction to broaden access to the PPP. This new
  policy will take effect during the first week of March.

• Guarantee access to immigrant-owned small businesses. Under current
  law, small businesses that are owned and operated by non-citizens may
  apply for a PPP loan if the owner is lawfully residing in the United States.
  However, many small business owners who use an Individual Taxpayer
  Identification Number (ITIN) instead of a social security number, including
  visa holders and green card holders, have had trouble accessing the PPP. A
  lack of clear guidance from the SBA has created inconsistency in access for
  ITIN holders, with some lenders willing to work with ITIN holders while
  others have declined. The SBA will address this unfair inconsistency by
  issuing clear guidance in the coming days that otherwise eligible applicants
  cannot be denied access to the PPP because they use ITINs to pay their
  taxes.

• Promote transparency and accountability by improving the PPP loan
  application. The latest round of PPP has only collected race/ethnicity,
  gender, and veteran status data for 26 percent, 43 percent, and 35 percent
  of applicants, respectively. While this is a marked improvement compared
  to the first round of PPP, which did not initially collect any demographic
  data at origination, these response rates are far lower than the 70 – 85
  percent historic response rate for other SBA programs which have
  applications that feature demographic questions further up in the
  application. To address this challenge, the SBA moved the demographic
  question from the last page to the first page of the PPP application on
  February 17th. The change will increase borrower awareness and capture a
  higher response rate to better illustrate the impact the PPP is having across
  various population segments.
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Improving outreach, building trust, and increasing
accessibility to underserved communities

The Biden-Harris Administration is committed to providing the technical
assistance and support needed to ensure that the nation’s small businesses can
access federal relief programs. The Administration will work to earn the trust of
underserved communities by working with community partners, increasing
communication and transparency, and making tools more accessible.

   •   Improving the Emergency Relief Digital Front Door. For many small
       business owners, the SBA.gov website is the first access point for our relief
       programs. SBA.gov gets tens of millions of page views per quarter and had 75MM
       views in 2020 from applicants seeking information about PPP loans. Businesses
       come to SBA.gov for help, but too many times they left discouraged or confused
       trying to navigate the site. The Administration and the SBA are working to update
       key areas of SBA websites to help more applicants find navigators and lenders that
       can help them stick with the application process from start to finish. As a start, the
       SBA has updated the SBA.gov homepage, updated language to make it more
       accessible, and added single click pathways to the most helpful resources,
       including Lender Match that can help connect small businesses directly with PPP
       lenders. The SBA is on track to make additional changes for PPP and proactive
       website improvements that will positively impact all loan and grant programs
       moving forward.
   •   Giving Voice to Communities. To improve upon the delivery of small
       business relief programs, the Biden-Harris Administration has conducted
       extensive stakeholder outreach to learn more about challenges and
       opportunities in the implementation of current emergency relief programs.
       This stakeholder outreach has followed a “whole of government” approach,
       with small business meetings hosted by President Biden, Vice President
       Harris, Treasury Secretary Yellen, senior National Economic Council (NEC)
       staff, and SBA and Treasury staff. NEC, SBA, and Treasury staff have
       facilitated several discussions with more than 100 representatives from
       small business advocacy organizations, community financial institutions,
       and other stakeholders to collaborate on improving outreach to small and
       minority-owned businesses. The Administration will continue to engage
       with communities to inform the design and delivery of vital programs that
       meet their needs.


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Strengthening the SBA’s relationships with its lender
partners to achieve goals and improve program integrity

With more than 5,000 active lenders, the Paycheck Protection Program is one of
the largest public-private partnerships to deliver relief to the American people in
US history. In the weeks ahead, the SBA plans to strengthen its relationships with
lender partners to advance equity goals, deliver funding efficiently, and prevent
waste, fraud, and abuse.

   • Enhance the current lender engagement model. As part of the Biden-
     Harris Administration’s commitment to further improve access to capital
     for small businesses, the SBA is launching a new initiative to deepen its
     relationships with lenders. This model will increase opportunity for lenders
     to provide recommendations and ask questions about the PPP and drive
     resolution of open questions and concerns in a more streamlined way. The
     SBA’s goal is to make it easier for lenders to make PPP loans and to
     continue its relationships with this broader network of lending partners to
     expand access to capital after the PPP. Over the last several weeks, the SBA
     has hosted lender calls with over 6,000 attendees; held individual meetings
     with lender trade associations representing a wide array of institutions,
     from the largest banks to the smallest community lenders, and equipped
     the agency’s field team of lender relations specialists with information to
     support resolution of lender and borrower questions.

   •   Partner with lenders to achieve shared goals of reaching underserved
       small businesses. The newest round of PPP lending has improved
       equitable access across most dimensions, but more work is needed to
       ensure underserved small businesses access help, especially those in LMI
       areas. Preliminary SBA data shows that much opportunity to improve lies
       with lending partners who succeeded in reaching these areas in the first
       round of PPP. The SBA will continue efforts to partner with its trusted
       lenders to increase equitable access to capital.

   •   Increase program integrity. The Biden-Harris Administration is committed
       to addressing waste, fraud, and abuse across all federal programs. The
       Administration has instituted several new anti-fraud measures to prevent
       wasted taxpayer dollars. Unlike the previous round of the PPP, loan
       guaranty approval is now contingent on passing SBA fraud checks,
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Treasury’s Do Not Pay database, and public records. While these checks
mean there is no longer instantaneous approval, more than 96 percent of
loan applications have an approval time of less than 48 hours after being
submitted. The SBA now also conducts manual loan reviews for the largest
loans in the PPP portfolio and a random sampling of other loans. The SBA
has worked, and will continue to work, with its lender partners to create
streamlined processes to resolve issues as quickly as possible, while still
ensuring taxpayer dollars are spent wisely.




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Appendix: Paycheck Protection Program Data
As of 2/18/2021

Program Summary
The SBA has deployed ~$133.5B in forgivable PPP loans to ~1.8 million small businesses in
the first month of the program. The current round of PPP is more equitable on all
measures, with the exception of LMI, which remains stagnant:

   •   The average loan size is down 42 percent, to just $73,966
   •   The share of funding going to small businesses is up, and to larger businesses is
       down
          • For businesses with <10 employees share of funding is up nearly 60%
          • For businesses with <20 employees, share is up 50%
          • For businesses with over 100 employees, share is down over 60%

 Equity Metric                      PPP Month         PPP Month One      % Change
                                    One (’20)         (’21)
 Average Loan Size                  $127,111          $73,966            -42%
 % of businesses <10 employees      69.1%             78.8%              14%
 % of funding <10 employees         16.7%             27.0%              62%
 % of businesses <20 employees      83.9%             90.3%              8%
 % of funding <20 employees         30.1%             45.1%              50%
 % of businesses >100 employees     2.3%              0.8%               -65%
 % of funding >100 employees        32.2%             13.1%              -59%

In addition, support to rural communities is up nearly 30% and support flowing through
Community Development Financial Institutions and Minority Depository Institutions is up
more than 40%:




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Equity Metric           PPP Month One (’20)   PPP Month One (’21)   Notes
% of businesses         76%                   83%                   60% more of the funding is going
<$100K                                                              to the smallest businesses
% of funding <$100K     18%                   29%                   proportional to this point last
                                                                    round
% of businesses in      21%                   27%                   29% more businesses in rural
rural communities                                                   communities served proportional
% of funding in rural   16%                   17%                   to this point last round
communities
% of loans made by      4%                    5%                    40+% more funding through
CDFIs and MDIs                                                      trusted CDFIs and MDIs
% of funding through    3%                    5%                    proportional to this point last
CDFIs and MDIs                                                      round
% of businesses in      23%                   23%                   Similar proportion of businesses
LMI communities                                                     served and slightly smaller
% of funding in LMI     26%                   25%                   proportion of funding to LMI
communities                                                         communities proportional to this
                                                                    point last round




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