An Unintended Consequence of PPP – The Sequel

The Paycheck Protection Program (“PPP”) Round 2 stands to be approved Thursday after the House pass and President signs. It is interesting in that it added an additional $321.3 billion to the pot AND authorization for an additional $310 billion.  Supposedly this is to be allocated $250 billion to all institutions and $60 billion to banks/credit unions from $0 to $50 billion. The latter being a very interesting development in reserving money for our community and medium sized banks.

A bigger development is that these PPP funds will essentially shut down the traditional Small Business Administration SBA 7(a) loan program. Apparently the CARES Act combined the PPP and 7(a) loan program’s dollar amount caps into a joint pot. In english, we’re out of money for 7(a) loans real soon. The 7(a) program will be shut down upon the moment the PPP exhausts its funds the second time. Unless there is a legislative fix, be prepared for no 7(a) loans until at a minimum July 1st.

When you value a business for a business valuation engagement, the valuation analyst needs to consider how the Company is supporting its revenue and earnings growth projections.  The SBA 7(a) program has been a great debt financing that has permitted many business owners to grow and even sell.  This is another example of a risk factor that could negatively impact your business’s valuation.  If you are interested in getting more clarity on how this, COVID-19, and all the current uncertainty are impacting the value of your business, please reach out to us or schedule an appointment for a free consultation with us here.

2020-04-23T23:13:13+00:00

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