Payday Loans at the Epicenter of Covid-19 Small Business Loans

Many small businesses are desperately seeking help with loans since the outbreak of Covid-19. Some small businesses are being left out  when it comes to the Coronavirus Small Business Loan program. One business that is pushing back hard is the small dollar lenders issuing Payday or Title Loans.

Currently, a bipartisan group is pushing the Trump Administration to include payday lenders in the Paycheck Protection Program through a Small Business Loan  as the country faces uncertainty during the Covid-19 pandemic.

What is the Paycheck Protection Program?

The goal of the Paycheck Protection Program is to keep Americans working or at least receiving a paycheck by providing a loan to small businesses to cover the cost of payroll. The stipulations are that the money be used for payroll, mortgage interest, rent and utilities.

There are limitations to the size of the businesses that can apply and receive the Small Business Loan. Directly from the United States Small Business Administration, these are the qualifications:

“Any small business concern that meets SBA’s size standards (either the industry based sized standard or the alternative size standard)

  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
    • 500 employees, or
    • That meets the SBA industry size standard if more than 500
  • Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
  • Sole proprietors, independent contractors, and self-employed persons”

How are Small Business Loans to be repaid?

The best part about these Covid-19 related business loans is that the loan can be fully forgiven. If the small business uses the entire loan amount for payroll, the loan will be fully forgiven. However, at least 75% of the loan must be used for payroll purposes regardless.

In addition, the loan will be deferred for six months. This is to ensure these small businesses have ample time to recover from the devastation of Covid-19. The government has suggested that each state considers reopening their economies slowly and in phases. This obviously creates additional strategies and slow growth for these businesses.

Lastly, there is no requirement of collateral or a personal guarantee. The interest rate is 1% with a maturity of 2 years. There are also no fees to be administered by the government or lenders for these loans. This loan was designed to create an easy way for small businesses to survive the crisis of Covid-19 and get back on their feet quickly.

The application for the Covid-19 Small Business Loan can be found here .

Why were many lenders left out?

Many small businesses were left out of the conditions of this loan. This has forced many companies to lay-off or furlough employees, along with cutting hours, cutting salaries or even closing up shop.

So why were payday lenders left out of the Payment Protection Program? There is a stigma associated with payday lenders (also known as title loans, fast cash loans, etc.). Payday lenders have been accused of predatory behavior by targeting lower-income people. Payday lenders were deemed not eligible for the program, yet here in Arizona 1 Stop Title Loans , along with similar lenders, were told that they were an essential business and continue to serve their communities. As over 22 million Americans have lost their jobs due to Covid-19, the question becomes how long can before employees of these small dollar lenders are added to that total?

The Downfall of the Payroll Protection Program

When the Trump Administration signed the first wave of loans into funding, the program faced almost instant backlash. Lenders are being accused of prioritizing certain businesses first, even though it was supposed to be a first-come, first-served basis. Funding for the Small Business Loans quickly ran out with the smallest and hardest hit businesses missing out on the funds.

Another $320 billion has been signed into effect with the additional qualifications. This new money will not be granted to businesses that are publicly traded, hedge funds and private equity firms.

Even the L.A. Lakers  got a hold of $4.6 billion in Small Business Loan money. Since it has been discovered, the NBA team has returned the funds. It makes one wonder how they managed to get approved and funded in the first place.

The good news is that Treasury Secretary, Steven Mnuchin, is well aware of the situation. He intends to do a full review  and scrutinize larger businesses that managed to squeeze through the loophole. Any of these companies that falsified or misrepresented their situations could face penalties.

Final Thoughts on Covid-19 Small Business Loans

It is hard to say which directions these loans will go, who will end up getting approved and receive money. It is easy to see that larger companies are preying on these loans, leaving the true small businesses in the dust. The goal is to create a successful working environment for all businesses, including payday lenders as they are deemed essential.

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