The $ 2 trillion coronavirus bailout The package that Congress passed last month includes a lifeline for small businesses facing an existential threat amid store closures and slumping sales. But this lifeline – the Paycheque Protection Program intended to provide forgivable loans to small businesses that retain their employees – can be difficult to grasp.
The program initially provided for some $ 349 billion in emergency loans, but on Tuesday Treasury Secretary Steven Mnuchin said he had secured an additional $ 250 billion for the program.
The US Small Business Administration, the federal agency overseeing the rollout of so-called PPP loans, allowed banks to start receiving applications on Friday, but there are already signs of engine problems. Although the loans are guaranteed by the SBA and allegedly funded by the Coronavirus With the Aid, Relief and Economic Security Act that the House passed on March 27, banks receiving requests are able to put their own gloss on eligibility criteria and stifle the flood of requests for information.
Banks, allowed to create their own application forms and portals, have shown a tendency to prioritize applications from their existing borrowers, lawyers said.
“The CARES law does not require borrowers to have an existing relationship with the bank, but if you are a bank, one way to stem the tide is to focus on the clients you already work with,” said Morgan Nighan, partner at Nixon Peabody LLP, who advises clients on applying for PPP loans.
“Were [also] hearing that banks require very different information from borrowers, some of which is not required by the CARES law, ”she said. “We tell customers to expect this to involve bureaucracy and wait time, and to expect a fair amount of frustration.”
PPP loans, which provide forgivable loans of up to $ 10 million to small businesses affected by the pandemic, are intended to incentivize employees to retain employees during a period of historic layoffs – jobless claims in the second half of March sharp of nearly 10 million. The loans are intended to cover up to eight weeks of salaries and operational expenses, and the program is designed to write off loans for these core costs if the business uses at least 75% of the loans to cover salary costs.
Christopher Skinner, who founded his New York-based beauty brand agency School House in 2015, is still waiting to hear about his PPP loan application. So far, throughout the pandemic, Skinner has continued to pay his 15-person business, as well as rent for the month of April, although he and his staff have been working remotely in light of the lockdown. underway in the city, and paid his business independent contractors.
But the additional funding would be essential as clients delay or scuttle projects, or change their billing terms with his agency during the crisis, he said.
Skinner applied for a PPP loan through Bank of America, through a process he described as full of twists and turns and uncertainty. He was initially pushed back for not having had a prior borrowing relationship with the bank, like a previous line of credit, even though he had a Bank of America checking account.
After several calls with the bank’s customer service department on Friday, he was able to get his application through over the weekend, when the bank expanded its eligibility criteria to accept applications from its small business owner clients with a relationship. deposit with the bank, as long as they did not have a loan relationship with another institution.
“It’s about spreading the information so that we can make changes and allow small businesses to access the financing they need to stay afloat, to keep people working and bounce back when they’re ready,” did he declare.
Bank of America, which began receiving requests at 9 a.m. Friday, received tens of thousands of requests on the first day, according to spokesperson Matt Card. The bank had initially limited applications to small business clients who already had a lending relationship with the bank, in order to move applications quickly, he said. He expanded the eligibility requirements over the weekend.
“Everything is with the intention of ensuring that these applications are downloaded to the system as quickly as possible,” he said.
PPP loans, although administered by the banks, are financed by the government through the stimulus plan. And unlike traditional loans, banks here do not play an underwriting role in determining whether a borrower is able to repay the loan.
The agency relies on the banks to help it navigate the scope of the program. The SBA, known primarily for providing so-called 7 (a) financial aid loans to small businesses, approved some $ 28 billion in small business loans in fiscal 2019, according to its November financial report. In comparison, the agency oversees an emergency loan program intended to distribute hundreds of billions of dollars in loans.
As complex as the application process may seem today, there is a harder road for companies to go, lawyers said – later apply for a loan forgiveness, if they have met the criteria for retaining their employees. and have spent 75% of the loan proceeds for up to eight weeks. for salary costs, as indicated in the program.
“It will be a lot easier to get the money than to make it forgive, that’s my feeling,” said Nighan of Nixon Peabody.