More than $100 billion in PPP loans going unused as deadline approaches

More than $100 billion in federal loan guarantees for small businesses and nonprofits struggling to survive the coronavirus may go unused because Tuesday is the last day that the U.S. Small Business Administration can approve applications for PPP loans.

The Paycheck Protection Program, begun on April 3, has provided guarantees to almost $519 billion in loans from banks and other private lenders to nearly 4.8 million borrowers as of Saturday, according to SBA. Based on the data, more than $134 billion in guarantees are still available.

For Innovative Glass Corp. in Plainview, a $155,000 PPP loan meant no furloughs for 10 employees even as sales dropped because of the virus and shutdown of all nonessential activity, founder and CEO Steve Abadi said Monday. It meant the firm, which designs and sells architectural "smart glass," including panels that frost when electricity is switched off and clear when it's turned on, could continue to pay salaries, rent and utilities, he said.

"I had to make sure that I got it or else I was cooked,"  said Abadi, referring to his month-long effort to secure a PPP loan. "If the PPP didn't come through I would've been in a much, much worse position and been forced to furlough employees...For the last eight weeks, I've been given a reprieve to continue operating," he said.

Abadi and others said they hope Congress will extend the PPP deadline and permit borrowers to take a second loan.

"From day to day, you just don't know what's going to happen," Abadi said, referring to spikes in the number of coronavirus cases in the South and West. "The curve has not flattened on a national basis, and that's a concern because I'm a national company. Sales mean income, and if that income is down, I'm going to have a problem," he said.

On Capitol Hill, there’s some support for renewing the PPP but White House aides have said they first must evaluate the loan program's effectiveness.

“Many of the smallest, most vulnerable businesses were shut out of the first round of funding and have since struggled to find lenders or determine if the program is workable for their business,” said John Arensmeyer, founder of the lobbying group Small Business Majority in Washington and a California entrepreneur. “It is up to Congress to ensure…critical relief funds do not lapse because of the closing application window.”

He said the PPP, while implemented quickly by SBA and the Department of Treasury, has been undermined by ever-changing regulations that reduced participation by banks and small businesses. SBA issued 18 sets of rule changes and 17 updates to its Frequently Asked Questions for lenders and borrowers in the PPP's first 10 weeks, according to a report by the Government Accountability Office.

“To help quickly disburse funds, SBA allowed lenders to rely on borrower certifications to determine borrowers’ eligibility, raising the potential for fraud,” GAO said.

Among PPP recipients, the industries receiving the most loan funds, more than 12% each, were health care/social assistance, professional/scientific/technical services and construction, according to SBA.

In New York State, more than 316,800 PPP loans have been made, totaling $38.1 billion as of Saturday. SBA hasn't provided data for Long Island, but regional administrator Steve Bulger said Monday that "both Nassau and Suffolk counties represent a good number of the New York" loans.

The federally guaranteed loans are for up to $10 million with an interest rate of 1% and a five-year term. The loans may be forgiven in some cases. Newsday received a $10 million loan.

In the metropolitan area, PPP loans helped to sustain small businesses that saw their cash balances drop 14% on average in March and early April, said Diana Farrell, CEO of JPMorgan Chase & Co.’s research institute.

“A global pandemic and stay-at-home orders create a hard environment for any company to operate in – but it can be a death sentence for small businesses, which already operate on thin cash buffers,” she said.

Data show that PPP recipients did what Congress wanted: They didn't idle employees or have brought back at least some of those who were laid off and furloughed.

A study of 100,000 customers of the small-business payroll service Gusto in San Francisco found the hiring and rehiring rates in late April through early June were nearly twice as high for those who received PPP loans compared with those who did not, 34% vs. 18%.

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.