Analysis: US firms have canceled at least $18 billion in small business loans

U.S. companies have canceled at least $18 billion in loans from the government’s central coronavirus relief program for small businesses, a much larger figure than figures previously announced by publicly traded companies that have millions after a public backlash of US dollars returned.

The $18 billion value was calculated by Bloomberg News using data released by the Small Business Administration from the first and second rounds of the Paycheck Protection Program. Cancellations include returned funds, duplicate loans, and loans that didn’t close for any reason, according to the SBA. An agency spokesman declined to comment.

The SBA recently began releasing net numbers to the program. As of Tuesday evening, May 19, nearly 4.4 million PPP loans worth $512.9 billion were approved. As of May 8, the SBA had reported $531 billion for the two rounds.

The number of forfeited loans is likely higher as new approvals continue to be issued and the SBA has not provided comprehensive accounting. Data shows that more money was repaid this week, with the net amount falling by almost $350 million between Saturday and Tuesday. SBA Administrator Jovita Carranza, who is in charge of the $669 billion program, tweeted April 27 that more than $2 billion of the first round of PPP funding was either rejected or returned.

The reasons for loan cancellations are unclear. Most of them are from unidentified closely held companies. Listed companies have repaid 67 loans worth $433.7 million as of Wednesday morning, according to data compiled by FactSquared.

Many companies rushed to foreclose on PPP loans after companies like Shake Shack Inc. and the Los Angeles Lakers received millions in loans at the expense of corner shops (both said they had returned their loans). It prompted the Trump administration to warn that companies with significant market value and access to capital markets were unlikely to qualify for PPP – and that all loans greater than $2 million will be reviewed to determine if they qualify.

The volume of loans repaid shows that the challenges of the PPP program extend well beyond the larger companies, which should not have borrowed. Some smaller companies said they had concerns about raising or keeping funding because uncertainty about program rules meant they might have to pay back what they thought was a grant.

Treasury Secretary Steven Mnuchin initially said companies that improperly certified the need for the loans were punishable by law. Then, on May 13, the SBA and Treasury announced that all borrowers with loans less than $2 million would automatically be deemed to be in good faith — and anyone with a larger loan that is in question would return it with no further action can.

The back and forth and lack of guidance led to confusion among small businesses. Some companies said they were holding back their loans or considering returning the money because they didn’t know how much they might have to pay back without further guidance on how to calculate the amount that can be lent. The SBA and Treasury Department finally released an 11-page filing and instructions Friday night – nearly three weeks after the April 26 deadline.

The volume of canceled PPP loans has contributed to a slowdown in loan approvals. The first round of funding of $349 billion expired on April 16 after 13 days. Based on the latest daily SBA report as of May 16, there was more than $100 billion remaining in the $320 billion second tranche that began April 27.

The data shows that the size of loans in the second round got much smaller after the government took steps to ensure the smallest companies not included in the first tranche could access financing. A PPP report released Monday, May 18 shows that the average loan size for the entire program to date is $118,000. In the first round it was $206,000.

Large banks with assets greater than $50 billion have accounted for 37% of the approved loan amount so far, while lenders with less than $10 billion have had 43%, according to the latest report. Loans of $150,000 and less accounted for 26% of the total based on dollar amount, while loans over $2 million accounted for 22%, the report shows.

Groups representing both small businesses and lenders are lobbying for changes to program rules, such as: B. extending the eight-week period by which loan proceeds must be spent and relaxing a rule that at least 75% must be used for payroll. Many businesses say they will not reopen or be fully operational after eight weeks and want to spend more on other expenses.

There are moves in both chambers to relax PPP rules, although it’s too early to tell if they will succeed.

US Republican Senator Marco Rubio of Florida said in a video posted to Twitter on Wednesday, May 20, that he expects the Senate to make efforts this week to pass a measure extending the loan write-off period extended by up to eight weeks that would have bipartisan support. The question, Rubio said, is whether Democrats would make different demands and whether the House of Representatives would pass them.

House Speaker Nancy Pelosi told reporters Wednesday that a bill would also be voted on next week to make changes to the PPP rules, including extending the loan forgiveness deadline and changing the requirement that 75% is spent on payroll.

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