He returned his PPP money because he qualified for a larger loan. Then the program ran out of money

Carmelo Ramos returned his $ 11,458 PPP loan because he qualified for more cash. He was left with nothing when the program ran out of funds when he reapplied.

Carmelo Ramos

When 36-year-old Carmelo Ramos received his second-draw loan from the Paycheck Protection Program in February, he was grateful.

The $ 11,458 loan was more than the roughly $ 6,200 he received in the first round of the program in 2020. While it didn’t cover all of the business that had lost its training advice due to the coronavirus pandemic, it helped.

Then his personal commercial banker at Capital One told him he could get even more money – an additional $ 7,000 – if he returned his loan and applied for again.

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He chose to do it, but had nothing left when the program ran out of money in early May, weeks before the deadline.

“The money I would have received would have made a difference,” said Ramos, adding that it covered his pay. He also planned to invest part of the loan in new marketing materials.

Smallest companies unprepared

Ramos was one of millions of business owners in the pipeline in early May when the PPP suddenly ran out of its allotted $ 292 billion.

Ramos has been hit especially hard for being a sole proprietor, one of the smallest types of businesses, and a group specifically focused on the recent changes to the Small Business Administration program.

“I think we had finally gone around the corner and gained significant awareness in the communities we target, especially in very small businesses and minorities,” said Toby Scammell, founder and CEO of Womply, a fintech Company that matches borrowers with lenders.

Womply saw that in the last few weeks of the program, more of the smallest companies, more belonging to minorities and women, applied. The fast lane for such companies received about 1,000 applications a day in the week leading up to the end of funding, Scammel said.

Changes came at the last minute

In February, the Biden administration made changes to PPP, including updating the sole proprietorship loan formula, resulting in larger loans.

The maximum PPP loans for companies with employees were calculated using 2.5 times the average monthly wage and salary costs. For companies with no employees, such as sole proprietorships and independent contractors, the SBA used net profit as a substitute for labor costs. Since this measure included deductions, it resulted in smaller loans and even made some ineligible.

Instead, the new formula used gross income as a substitute for labor costs, a larger number that does not include any deductions. That meant companies that applied under the new rule got more money for forgivable loans.

To Ramos, the additional $ 7,000 seemed worth the risk of terminating his existing loan and trying again. It was March when he started the cancellation process – months before the May 31 extended program date.

“The reason I chose to do this is because it’s the difference between being able to hike for another five to ten months,” he said.

However, the process took longer than expected. First, Ramos received a promissory note for his new loan, but it was the old amount – meaning it hadn’t been calculated using the new formula.

While trying to figure out what to do with Capital One, the program ran out of money and ran out of credit at all.

“Unfortunately, the Paycheck Protection Program for large financial institutions ran out of funds well before May 31, and we know that many small business owners across the country were taken by surprise by the sudden timing,” Capital One said in a statement it emailed.

Other options for small businesses at risk

When the PPP ended, around $ 9 billion was earmarked for borrowers who applied through financial institutions in the community. Most of the money has run out, however – around $ 6.5 billion has been loaned through community financial institutions in the past few weeks, leaving around $ 2.5 billion in the program, according to the SBA.

Many lenders encourage entrenched applicants to reapply with these companies, but it’s easier said than done. Ramos said he had spent hours trying to find a financial institution in the community to apply to, but failed to find a new financial institution.

There are a few other small business programs hard hit by the coronavirus pandemic, such as the SBA Economic Injury Loan Program, the Shuttered Venue Operators Grant Program, and the Restaurant Revitalization Fund.

However, some of these programs do not have sufficient funding. For example, more than 266,000 companies applied for the $ 28 billion Restaurant Revitalization Fund in the first few weeks.

“We believe this program will be oversubscribed and if we can cover all of the eligible restaurants, Congress needs to allocate more money to this program,” said Senator Ben Cardin, D-Md., During an event with Small on Thursday Business Majority, an advocacy group. “It has yet to be determined by Congress, but we need to put more money into this program.”

PPP would also need more money allocated by Congress to meet the need, Cardin said, especially for sole proprietorships. Some small businesses have missed large loan amounts because they applied before new rules came into force and since the beginning of the year they have been asking for those rules to have retroactive effect. Cardin has introduced laws for this.

“We think laws should be passed,” he said. “In addition to changing this bill to make it retroactive, we would also have to apply some additional funding.”

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