San Diego small businesses poised to tap PPP relief funds again

Chris Sullivan, an employee at Karl Strauss brews Boat Shoes Hazy IPA at the Karl Strauss Brewing Company in San Diego.
(Ariana Drehsler/For The San Diego Union-Tribune)

Demand expected to be high for Paycheck Protection Program loans as stay-at-home orders continue amid COVID-19 case surge


With applications for the latest $284 billion round of the Paycheck Protection Program restarted on Monday, Jan. 11, demand is expected to be high among San Diego County small businesses reeling once again from pandemic restrictions on their operations.

The forgivable loans, which provided a lifeline for many small businesses early in the pandemic, are not open to all qualifying firms just yet. The program has been tailored this time to give first-time borrowers and underserved businesses a head start in submitting applications.

But soon most non-publicly traded small businesses with 300 or fewer employees should be able to seek PPP funding, perhaps as early as next week.

It’s money that some say they need if they are going to survive Southern California’s ongoing stay-at-home orders amid rising COVID-19 cases.

Bob Rauch, who owns three hotels in San Diego County, received a PPP loan this spring, which helped him retain workers through the fall even though business was weak.

But that money has mostly run out. With the return to lockdowns in December, leisure and business travel has all but disappeared. A few extended stay guests account for the bulk of his room nights.

“Nobody is traveling,” he said. “I am actually having to pay the mortgage and payroll out of pocket. At least if there was some business, I could pay one or the other. But I am nowhere on revenue.”

Rauch has spoken to his banker and intends to apply for a second PPP loan, which he thinks will help keep him stay afloat until travel picks up again, possibly this summer.

“This second round of PPP, coupled with my savings, is going to be what gets me through this,” he said.

On Monday, Jan. 11, the U.S. Small Business Administration began accepting applications from first-time borrowers who missed out on previous PPP funding. Only certain lenders can process applications for now. They include community-development financial institutions, minority depository institutions and other organizations that tend to make micro-loans or lend in underserved communities.

On Wednesday, Jan. 13, this same group of specialty lenders will be able to submit applications for small firms seeking a second PPP loan.

For traditional lenders such as banks, which likely will submit the bulk of applications, the window will reopen sometime soon, though the SBA has not said exactly when yet.

“People who have already navigated the process are very likely to apply again,” said San Diego State University finance professor Stephen Brincks. “They’ve made it very similar to the first bill, so there is not too much more complexity. And they have simplified the forgiveness application for businesses that took loans under $150,000. So that will make it more appealing for the really small businesses.”

During the first round, about 51,600 companies and nonprofits received PPP loans in San Diego County. A vast majority, about 44,000 local establishments, got loans under $150,000. About 7,600 local firms received loans ranging from $150,000 to $10 million.

This time, the largest available loan is $2 million, not $10 million. Another new requirement: Businesses seeking a second PPP loan must show a 25 percent drop in revenue during a quarter in 2020 compared with the same quarter in 2019.

This spring, Karl Strauss Brewery received more than $5 million in PPP funding, which helped it keep employees at its eight brewpub locations across the region while pivoting to takeout and outdoor dining.

But with outdoor dining now forbidden again under state public health guidelines, Karl Strauss will apply for additional PPP funds in hopes of riding out the current COVID-19 surge, said Chad Heath, vice president of sales and marketing.

“The program worked out well for us the first go around,” he said. “While a lot of companies burned through the money fast, we went on a slow drip with that. It really helped us get through the majority of 2020. While this will be a smaller amount, the hope is this will get us through March, and by then maybe the cases will start coming down.”

During the first round of PPP, a flood of applications at times overwhelmed the SBA’s electronic systems. In addition, critics charged that banks favored their larger clients with existing relationships over smaller, less-connected firms or new clients seeking PPP loans.

The SBA has taken steps to address these issues, said Michael Sovacool, deputy district director of the San Diego District Office of the SBA.

“There is an attempt to make it more user friendly,” he said. “For those loans under $150,000, there is a simpler application form and a simpler, almost self-certification for forgiveness. There is a focus — and dedicated dollars — for those communities that are underserved and particularly hard hit.”

One of the hardest-hit industry sectors is hospitality. For small restaurants, hotels and other tourism businesses, the latest PPP legislation allows them to get forgivable loans for up to 3.5 times monthly payroll, compared with 2.5 times monthly payroll for non-hospitality businesses.

“Let’s say you are a good-sized restaurant, and your monthly payroll is $100,000. Well, now instead of a $250,000 loan you can get a $350,000 loan. That is a huge benefit,” said Daniel Fitzgerald, acting regional director of The San Diego & Imperial Small Business Development Center Network, which works with the SBA and other agencies to help entrepreneurs.

Fitzgerald said interest in additional PPP loans has been high. The SBDC, cities, the county of San Diego, chambers of commerce and other organizations have gotten the word out not only about PPP but also for other programs, such as the $500 million state of California small-business relief fund.

“The business owners themselves have been educated,” he said. “They’ve had time. The first round of PPP came at them like a ton of bricks. Now they’ve had time to process the information.”

Banks also are more familiar with the process, which hopefully will help make it easier to navigate this time, said Nathan Rogge, president and CEO of Bank of Southern California.

Bank of Southern California made 3,200 PPP loans last year, a majority of which went to new customers. This time, the bank has reached out to existing PPP borrowers, as well as to minority chambers of commerce, to let them know that more PPP funding is on the way. Rogge said the bank is open to helping new clients as well.

Rogge is curious, however, to see how many businesses seek additional PPP money. While pandemic restrictions badly hurt certain businesses, Bank of Southern California’s customers overall did reasonably well, he said.

“We did not see much deterioration in credit quality. People were able to make their payments,” said Rogge. “I think there could be a lot of businesses that use it. On the other hand, I wonder if there is a chunk of people who decide, I did fine. I don’t need it.”

— Mike Freeman is a reporter for The San Diego Union Tribune