Carmelo Ramos returned his PPP loan of $ 11,458 because he was entitled to more money. He was left with nothing when the program ran out of funding when he reapplied.

Carmelo ramos

When 36-year-old Carmelo Ramos got his Paycheck Protection Program second draw loan in February, he was grateful.

The loan of $ 11,458 was higher than the roughly $ 6,200 he got in the first round of the program in 2020. Although he did not cover all the activities lost by his training consultant due to the coronavirus pandemic , that helped.

Then his personal investment banker at Capital One informed him that he could get even more money – $ 7,000 more – if he returned his loan and reapplied.

Learn more about Invest in You:
New monthly child tax credit payments begin July 15. What there is to know
Small business owners were blinded when P3 funding ran out early
How to get the monthly child tax credit if you don’t have a permanent address

He decided to do it, but found himself with nothing when the program ran out of money in early May, weeks before the deadline.

“The money I would have received would have made a difference,” Ramos said, adding that he would have covered his pay. He also planned to invest part of the loan in new marketing materials.

Smaller businesses caught off guard

Ramos was one of millions of business owners stranded in early May when the PPP suddenly exhausted its $ 292 billion allotted.

Ramos was particularly affected because he is a sole proprietor, one of the smaller types of businesses, and a group that has been specifically targeted in recent changes to the Small Business Administration curriculum.

“I think we’ve finally turned the corner and the communities we’re targeting, primarily very small businesses and minority communities, have been sensitized significantly,” said Toby Scammell, Founder and CEO of Womply, a fintech that connects borrowers and lenders. .

Womply was seeing more of the smaller businesses, which are more likely to be owned by minorities and women, to apply in the final weeks of the program. Its quick app for these companies was receiving around 1,000 requests per day in the week before funding ran out, Scammel said.

The changes happened at the last minute

In February, the Biden administration made changes to the P3, including updating the sole proprietorship loan formula, which led to larger loans.

Maximum PPP loans for businesses with employees were calculated using 2.5 times the average monthly salary costs. For businesses without employees, such as sole proprietors and independent contractors, the SBA used net profit as a proxy for labor costs. Since this measure included deductions, it led to smaller loans and even made some of them ineligible for funding.

Instead, the new formula used gross income as a proxy for labor costs, a higher number that does not include deductions. This meant that companies that applied the new rule received more money in the form of forgivable loans.

For Ramos, the extra $ 7,000 seemed worth the risk of canceling his existing loan and trying again. Plus, when he started the cancellation process, it was in March – months before the extended program deadline of May 31.

“The reason I decided to go is because, you know, it’s the difference between being able to walk for another five to ten months,” he said.

But the process took longer than expected. First, Ramos received a promissory note for his new loan, but it was the old amount – meaning it had not been calculated with the new formula.

While trying to figure out what to do with Capital One, the program ran out of money, leaving him with no loan at all.

“Unfortunately, the paycheck protection program funds for large financial institutions ran out long before the May 31 deadline, and we know that many small business owners across the country have been caught off guard by sudden timing, “Capital One said in an emailed statement.

Other options for small businesses at risk

By the end of the PPP, approximately $ 9 billion had been set aside for borrowers applying to community financial institutions. But most of that money has been used up – about $ 6.5 billion has been loaned by community financial institutions in recent weeks, leaving about $ 2.5 billion in the program, according to the SBA.

Many lenders encourage stuck applicants to reapply through these companies, but that’s easier said than done. Ramos said he spent hours trying to find a community financial institution to apply to, but was unable to find one to take on new applications.

There are a few other programs for small businesses that have been hit hard by the coronavirus pandemic, such as the SBA’s Economic Injury Disaster Loan Program, the Closed Site Operator Grants Program, and the SBA Fund. revitalization of restaurants.

But some of these programs are not adequately funded. For example, more than 266,000 businesses applied to the $ 28 billion Restaurant Revitalization Fund in its first few weeks.

“We believe this program will be oversubscribed, and if we are to be able to cover all eligible restaurants, Congress will need to allocate more money to this program,” said Senator Ben Cardin, D-Md. ., during Thursday event with Small Business Majority, an advocacy group. “It hasn’t been determined by Congress yet, but we’re going to have to invest more money in this program.”

The PPP would also need more money allocated by Congress to meet needs, Cardin said, especially for sole proprietors. Some small businesses have missed larger loans because they applied before new rules were put in place and asked for those rules to be retroactive at the start of the year. Cardin introduced legislation to do this.

“We believe that legislation should be adopted,” he said. “In addition to amending this bill to make it retroactive, we will also need to allocate additional funds.”

SUBSCRIBE: Money 101 is an 8-Week Financial Freedom Learning Course, delivered weekly to your inbox.

CHECK: How To Make Money With Creative Effort, From People Making Thousands On Sites Like Etsy and Twitch Going through Growing up with Acorns + CNBC.

Disclosure: NBCUniversal and Comcast Ventures Invest in Tassels.