Biden’s New PPP Guidelines Could Help Small Restaurant Operators Qualify for More Aid

President Joe Biden announced yesterday that he’d be tweaking the Paycheck Protection Program — the federal government’s central, if flawed lifeline to restaurants and other small businesses — in an effort to target underserved borrowers, independent contractors like food delivery workers, and struggling solo-proprietors.

Yesterday’s policy shift comes as a Small Business Administration report shows that while aid is now being distributed more equitably than previously — with the hard hit hospitality industry benefiting in particular — stark disparities still exist. Small businesses in low- or moderate-income areas have only received a small portion of funds, and the bulk of aid recipients who reported their background are white. Black, Asian, and Latinx borrowers appeared to receive a substantially smaller portion of the paycheck funds.

Starting tomorrow, Biden will limit the PPP to businesses and non-profits with fewer than 20 employees. “This will give lenders and community partners more time to work with the smallest businesses to submit their applications,” according to the SBA website.

The government is also adjusting the loan formula for solo-proprietors, a move that should give, say, small food vendors or chefs operating pop-ups access to larger forgivable loans.

Broadly speaking, the Paycheck Protection Program offers aid to businesses hit hard by the pandemic, with the loans converting to grants if applicants use the bulk of funds to rehire employees — often a challenge for restaurants operating under strict pandemic guidelines.

The first round of PPP from last April depleted its $349 billion in funds within weeks, but the current program’s set-asides for small businesses and first-time borrowers appear to be slowing down the rate of lending. The PPP had $284 billion available to lend when it relaunched on January 19; it still has about $150 billion in funds remaining.

Congressional legislation reauthorizing the program allocated $15 billion toward small businesses in low- or moderate-income communities, but has only disbursed about $2.4 billion toward that group. The reason for that gap, per the SBA, is that the bulk of funding in both wealthy and underserved areas is going toward larger businesses. Biden’s two-week exclusivity period is designed to fix that.

Another major development is that Biden is changing the PPP formula to allow sole-proprietors (like food stall operators), and independent contractors (like ride share drivers and food delivery workers) to receive more funding. Previously, those individuals had to base their loans on net profit, which often made for paltry aid to struggling businesses. The new formula, CNBC reports, will be based on gross income, and should allow for increased aid.

A catch: Individuals who already applied under the old profit formula are “out of luck,” per the New York Times. “The S.B.A. will not retroactively change loans that have been disbursed, and it will not let those who already got loans return them and reapply, according to an agency official familiar with the plan, who was not authorized to speak publicly,” that paper reports.

Biden’s rules also increase eligibility for individuals formerly convicted of non-fraud felonies or who are delinquent on their federal student loans.

So far the Paycheck Protection Program appears to be efficiently singling out the larger hospitality industry, as the lawmakers who drafted the bill intended. The accommodation and food services industry, which includes bars, restaurants, and hotels, has received $25.37 billion in aid so far, or 18 percent of all available funds according to the SBA. The next closest industry is construction, which has taken in 13 percent in paycheck funds.

Under the previous round of PPP funding that ended last August, accommodation and food service venues only received about 8 percent of available funds — even though those businesses suffered some of the steepest employment losses during pandemic.

The increase in hotel and restaurant aid is likely due to a new and improved formula. Hospitality-related businesses are now eligible to apply for loans up to 3.5 times their monthly payroll, versus 2.5 times for other businesses. Here, it’s worth noting that a version of the Restaurants Act currently packaged with the larger Democrat-backed relief bill would specifically target food service establishments with $25 billion in direct aid, though those funds would be grants with fewer strings attached than PPP loans.

Most paycheck funds appear to be going toward white business owners, who received $19.22 billion in aid, versus $2.35 billion for Black people, $3.42 for Asian folks, and $4.04 billion for the Latinx community. That data, however, is incomplete; the program disbursed another $110 billion in aid to businesses who didn’t reveal their demographics.

The average loan size this year is $73,000, with just 17.6 percent of loans exceeding $1 million. That’s a big change from last year’s program, when the average loan size was $101K, with over a third of loans exceeding $1 million.

So far in 2021, New York businesses have received $11.17 billion in small business aid, the second most PPP funds of any state after California, which received nearly $18.2 billion in the same category.