U.S. loan program resuming with focus on small businesses
A new round of Paycheck Protection Program money will start becoming available to select lenders and borrowers Monday, according to senior administration officials.
Community financial institutions — approximately 10% of eligible lenders — will be able to start accepting loan applications Monday for entities seeking their first loans. On Wednesday, those same lenders can begin processing second-round loans for small businesses and nonprofits that have already used up their first loan, the officials said on a call with reporters Friday. The lending portal will be available for other eligible lenders and borrowers shortly thereafter.
Businesses might have to wait longer for their loan to be processed than they did in the spring. The applications will go through a series of automated checks before a loan number is issued. This could take about a day, the officials said.
Making the loans exclusively available to community lenders for several days and the additional identity checks are intended to correct some of the confusion and fraud seen during the first round in the spring. The program ran out of money within days as businesses rushed to claim the funds with few eligibility restrictions. Many very small businesses without close ties to a lender were shut out of the process and unable to get funding.
“This updated guidance enhances the PPP’s targeted relief to small businesses most impacted by covid-19,” Treasury Secretary Steven Mnuchin said in a statement Friday. “We are committed to implementing this round of PPP quickly to continue supporting American small businesses and their workers.”
The officials said they do not anticipate that the system will be inundated with requests this time and that the $284 billion that Congress approved for this round won’t run out.
The updated forms to apply for the loans are not yet available, but should be posted soon, an official said.
The new pot of money sets aside $60 billion for businesses that haven’t been able to access the program so far, and it focuses on companies with 10 or fewer employees or those in low
income areas. The initiative also has $30 billion to help boost capacity among lenders active in underserved areas — including community development financial institutions, minority depository institutions and other small lenders.
In the latest round, businesses that received loans last year will be able to borrow up to $2 million as long as they have no more than 300 employees — down from 500 — and suffered at least a 25% drop in quarterly revenue. First-time borrowers with no more than 500 workers will be able to borrow up to $10 million.
The loans, which can be forgiven, will have five-year terms and carry an interest rate of 1%.
Loan amounts are calculated using a company’s payroll expenses; businesses can use either their 2019 or 2020 payroll to compute how much they can ask for.
Companies will have 24 weeks from the date they receive a loan to use the money. While 60% of the proceeds must be used for payroll in order for loans to be forgiven, companies can use the rest for employee health benefits, mortgage interest, rent, utilities and expenses that are essential to business operations.
The streamlined process for those who are applying for a loan of $150,000 or less means they need only certify that they meet the revenue-reduction requirements at the time they apply for a loan and provide documentation of the revenue loss at a later date. The process to get the loan forgiven is also simplified.
ELIGIBILITY CHANGES
The eligibility rules are also more lenient in this round. Housing cooperatives, direct marketing organizations and 501(c)(6) organizations, such as chambers of commerce and trade associations, are allowed to apply. Paycheck Protection Program loans can be used to cover more expenses, including operations expenditures, property-damage costs, supplier costs and personal protective equipment for employees.
The loan program is being restarted under the coronavirus relief bill Congress approved in late December, providing for $284 billion in new loans. The first two rounds, which began April 3 and ended Aug. 8, gave out more than 5.2 million loans worth $525 billion.
But for many businesses, including restaurants, gyms and retailers that depend on people gathering in large numbers or in close quarters, the money was nowhere near enough as the pandemic continued longer than anyone expected. It’s estimated that well over 100,000 small U.S. businesses have failed since the outbreak began.
Moreover, many companies weren’t able to get loans, including newly formed businesses and those whose financial records didn’t meet bank requirements. Many businesses applied to multiple banks, often because they couldn’t get a response to their applications and subsequent inquiries — and many of these business owners gave up in frustration or ran out of time.