What to Do If You Can’t Get a PPP Loan

The Paycheck Protection Program officially ended on May 31, 2021. Read our PPP page for more information or visit our PPP Loan Forgiveness Guide.

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As part of a larger relief package, Congress has approved $284.5 billion in new Paycheck Protection Program funding. The types of businesses and industries that are eligible for PPP loans have been expanded under the new bill. Additionally, businesses that can demonstrate at least 25% reduction in gross receipts year over year and meet other requirements may be eligible for a second PPP loan.

PPP Overview

If you’re an American small business owner, you’ve heard of Paycheck Protection Program (PPP) loans by now. In fact, you’ve probably looked into getting one, if not gone ahead and applied through one of the thousands of lenders accepting PPP loan applications. 

The PPP is a new loan program, introduced by the federal government to help businesses impacted by the coronavirus pandemic. In creating the PPP, the government tried to make as many small businesses as possible eligible for a loan—there is no formal credit score requirement, for example, nor do businesses need to put up collateral or personally guarantee the loan. 

There are, however, millions of small businesses across the country, and a one-size-fits-all loan program won’t work for every one of them. If for some reason you are denied a PPP loan, or you otherwise can’t obtain one, you need to find another financial resource for your business. 

Let’s review the reasons why you might not be able to obtain a PPP loan, and what you can do to help keep your business running instead. 

Why Some Small Businesses Are Denied PPP Loans

As mentioned above, the eligibility requirements for small businesses applying for a PPP loan are fairly broad and inclusive. 

Basically, to qualify for a PPP loan, you must be a small business, nonprofit, veterans organization, Tribal concern, sole proprietorship, self-employed, or independent contractor with 500 or fewer employees. Some industries have different size standards, set by the SBA, that allow them to still be considered small businesses. 

For example, electric power distribution companies, wineries, distilleries, and cement manufacturing companies can all have up to 1,000 employees and still qualify. For the full list of small business size standards, go here. 

In addition, your business must have been operational by February 15, 2020. If you started your business in late February or early March, you do not have the payroll history necessary to demonstrate the “average monthly payroll” amount used to determine loan requests. 

There are other situations where the SBA may determine that your business is ineligible for a PPP loan. These situations include: 

• Your business is engaged in an activity that is illegal under federal, state, or local law. 
• An owner of 20% or more of the business is incarcerated, on probation, on parole, is the subject of an indictment, or has been convicted of a felony in the last five years. 
• You or other owners of the business have previously been delinquent or defaulted on a guaranteed loan from the SBA or another federal agency within the last seven years. 

If your business is ineligible for a PPP loan but you apply through an SBA-accredited lender anyway, expect the lender to deny your application once they review it. 

Why Some Eligible Loan Applications Are Rejected

It’s possible that a lender will reject your loan application even if your business is eligible for a loan. 

Lenders reviewing loan applications will put businesses through a version of their underwriting process. This involves making sure that the requested loan amount adds up to 2.5x the business’s average monthly payroll, or that the business has supplied documentation proving their payroll costs. 

If you make a mistake in your loan application, your lender may reject your request and require you to re-apply with the correct information before they can process your loan fully. This may or may not put you at the “back of the queue” that each lender has. 

Why Some Businesses Still Haven’t Received a PPP Loan

If your business is eligible for a PPP loan and you submitted a clean application to your lender, but still haven’t heard back about being approved for a PPP loan, don’t panic. 

Lenders and the SBA are dealing with an unprecedented demand for this loan, and have processed millions of applications since the program started in early April. 

The SBA is also “pacing” the loan applications they process and approve in Round 2 of PPP funding, in an effort to make sure smaller lenders (such as local banks and credit unions) are able to submit their applications. This has led to a slowdown in approvals. 

Keep in touch with your lender, and wait to see if they are able to fund you with a PPP loan this round. If not, you may need to wait for subsequent legislation that funds the PPP or a similar loan program. 

PPP Alternative Options for Small Businesses

If you aren’t eligible for a PPP loan, all is not lost. The same goes for businesses that feel as though, as generous as the PPP loan is, it’s not a good fit for your business at the moment (considering you need to spend at least 75% of your loan on payroll costs and the other 25% on rent, utilities, and/or mortgage interest in order to receive loan forgiveness). 

There are other financial options for you, both available now and potentially on the horizon. Review our full list of coronavirus financial resources, as well. 

Explore Other Loan Options

The PPP is the biggest coronavirus business loan program, but it’s not the only one. 

You can also apply for an Economic Injury Disaster Loan (though as of this writing, EIDLs are only available to new applicants that are agricultural businesses, due to limited funding). If you are eligible for an EIDL, you can apply directly through the SBA for a low-interest loan, as well as a cash advance of up to $10,000. 

The SBA also has other loan products you can apply for depending on the state of your business, such as Express Loans and Microloans. 

In addition, the Federal Reserve is in the process of establishing a Main Street Lending Program, extending loans to small and medium-sized businesses affected by the pandemic. Loans through this program will be much larger than what is typically disbursed through the PPP, so if your business was too big to be considered for a PPP loan, this might be a good option. 

Use the Employee Retention Credit

Another option for businesses that need financial support now is to take advantage of the Employee Retention Credit, a fully refundable payroll tax credit introduced through the CARES Act. Small businesses cannot use this credit if they obtain a PPP loan, and vice versa. To qualify, businesses either must have fully or partially suspended operation during any calendar quarter in 2020 due to orders from the government, or have experienced a decline in gross receipts in a calendar quarter compared to the year prior. 

This credit is equal to 50% of qualified wages paid to employees (on a maximum of $10,000 in wages per employee), paid after March 12, 2020 and before January 1, 2021. 

To use the credit, businesses can either make their required payroll tax deposits, then claim the credit on their quarterly IRS Form 941, or keep the taxes they would normally deposit without being assessed a penalty. 

Apply for Grants

Grants for small businesses are always competitive—who doesn’t want free money for their business?—and that will remain the case during the pandemic and its after effects. That being said, there are more grant options for small businesses than ever, as private sector companies like Salesforce and Facebook and other organizations begin offering grants and other credits. We have a list of small business grants you can explore.  

Wait for Future Stimulus Packages

Congress will soon begin work on the next stage of coronavirus stimulus legislation, which may include a new infusion of funding into the PPP. The government may also use this opportunity to make changes to the PPP guidelines, or finance a new loan program altogether with different criteria. 

In the meantime, prepare your paperwork and find a lender that is accepting and processing PPP loan applications, so you can be ready for whatever is made available through new legislation. 

The Bottom Line

As a low-cost loan that can be converted into a grant, the PPP loan feels like the best and only shot for many small businesses struggling to make ends meet due to the pandemic. If you haven’t been able to obtain one of these loans for any reason, explore your other options, and make use of the tools you have at your disposal—such as 0% APR credit cards or existing lines of credit—to buy yourself some time before more resources become available.