PPP Is Running Out: Are Bad Credit Business Owners Hopeless Now?

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manny

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Published on September 12, 2020

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Facts go like this, the Paycheck Protection Program (PPP) in the US and similar programs in other countries helped millions of businesses. There were many issues with the funds distribution of these loans, but they still made a huge difference. However, PPP is now running out of money and so do the businesses that got financing from it. This means that we are in for a major overhaul of every market. Businesses will start closing and it will take a while for new ones to open. The global economic crisis is already here, but as the World Bank warns, it’s going to get worse. 

PPP Is Not a Fix-All Solution for Small Businesses

When the PPP program was announced, many business owners saw it as their salvation. And that’s exactly what it was for thousands of them. The same thing was happening in other countries where governments issued similar financing programs. Using this aid, businesses could avoid going bankrupt even while on lockdown. Moreover, they could keep their employees and prevent an even bigger surge in unemployment.

Sadly, the latter didn’t stop the unemployment rate from soaring regardless.

The PPP program received a lot of criticism for financing big businesses instead of small ones. It’s true that no system is perfect and this financing was definitely abused. However, thousands of business owners managed to get those loans anyway. And they lasted through the first months of the quarantine.

It seemed to be going well until the pandemic refused to end. In fact, many countries are now going back on lockdowns of varying severity due to the second wave of coronavirus cases.

Even if a possible repeat of lockdowns wasn’t an issue, many of the business owners that got PPP financing said they would run out of money by August. Meanwhile, restarting the economy wouldn’t have brought the revenues back to pre-pandemic levels. Therefore, millions of businesses would still suffer due to severe money issues. For many of them, those would be unsurmountable.

Businesses that were struggling even before the pandemic came along are the most vulnerable now. They, like many others, are desperate for the lines of credit to reopen and for lenders to open up again. But this isn’t going to happen as risks for lenders are now extremely high. 

Are There Bad Credit Financing Options for Small Businesses Now?

In recent years, even the most desperate businesses had ways to get a loan with no credit check. As the business financing industry is all but stopped right now, owners are expected to start filing for personal loans. Those are indeed available for people with any kind of credit score. And these lenders won’t care if you use the money for your business or personal expenses.

However, the terms of those loans are getting exceedingly bad. They weren’t good to begin with due to high interest rates and rather restrictive payout terms. 

In this situation, the only hope many business owners have is to seek bad credit business financing. It’s similar to personal loans in the fact that it’s not a borrower-friendly option. Interest rates are generally high and you must adhere to a very strict payment schedule. Moreover, you are often prohibited from paying out the loan early. Therefore, there is no avoiding the huge overpay in interest.

However, those kinds of loans also have some very important benefits. First of all, not all of them have such unreasonable terms. If you research and compare your options, you might be able to find something that will truly meet your business’ needs.

Also, these loans usually do not require collateral and allow for a rather bad credit score. This makes them the only financing option available for a great number of businesses affected by the current crisis.

But Lenders are Losing Businesses as Well

However, there is a huge problem with this type of mostly independent online lender. They are cutting loan originations to zero and making their terms more restrictive. Simply put, they are going out of business en-masse. Their risks, which were significant to begin with, have grown to extreme levels. In fact, it’s safe to say that many of these lenders will face the same failure as the businesses they were trying to finance.

Right now, loan defaults will keep growing in number. This isn’t going to change for a long while until the global economy recovers after this recent crisis. However, as it’s an unprecedented event, no one knows for sure when this will happen. The only thing experts seem to agree on is that this crisis is going to change the world as a whole in many ways. Therefore, any recovery will take a long time.

What Will Happen to Small Business Financing After the COVID-19 Crisis?

The future is bleak for small businesses, especially the ones with bad credit. There can be no doubt that millions of small business owners and entrepreneurs will file for bankruptcy. This process has already started and the numbers will grow.

Financing is now more important than ever. Yet, this is the service that’s largely unavailable to businesses. Unless this situation changes, there is no avoiding a massive economic collapse.

The example of the previous global economic recession shows that financing won’t be coming back soon. At the time, it took nearly a decade for banks to loosen up on small business and startup financing requirements.

However, this deficit of funding has also prompted the emergence of alternative and online lending and crowdfunding.

None of these financing options are working well at the moment. But it’s impossible to predict exactly how they are going to recover. There is also a chance that they will be replaced by some other types of financing that will increase availability of loans for businesses with bad credit.

It must be noted that there was no PPP and similar programs in the previous recession. At the moment, it’s impossible to predict the implications of such loans and their impact on businesses. But it’s safe to say that their impact on the country’s economy would be profound. Not all of it will be good because governments had to go to extreme lengths to make these funds available.

For now, the best we can do is wait and see how the situation progresses. And if you are a business owner in need of financing, look out for any government programs or grants. There is more of a chance to get those than obtaining an unsecured loan.

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