SBA Paycheck Protection Program Debut Not Without Issues
The U.S. Small Business Administration (SBA) launched the Paycheck Protection Program on Friday, a $349 billion emergency loan program created with the president’s signing of the Coronavirus Aid, Relief, and Economic Security Act (CARES). The program provides forgivable loans of up to $10 million to small businesses left financially distressed by the COVID-19 pandemic. The loans, which will be administered at the local level by a national network of banks and credit unions, are designed to maintain the viability of millions of small businesses struggling to meet payroll and day-to-day operating expenses.
Rollout of the program has not gone without its issues. On Friday, many lenders held off on accepting loan applications, citing a delay in the U.S. Treasury Department’s issuing of final guidelines for the program until the day before its launch. Wells Fargo announced on Monday that it would no longer be issuing loans in the program as it had already reached its lending threshold of $10 billion. The bank’s ability to make loans was capped by the Federal Reserve in 2018 when it was revealed that the bank had created millions of false accounts and other consumer abuses. Discussions with the Federal Reserve to remove the limit in light of the crises have reportedly failed to produce any changes to the decision.
Bank of America has said that during the first day-and-a-half of the program it had received 185,000 loan applications, equating to $30 billion in loans.
The loans, which are 100-percent backed by the SBA, are being provided to small businesses without collateral requirements, personal guarantees, SBA fees or credit elsewhere tests. Those eligible for the program include small businesses, certain nonprofits, veterans’ organizations, self-employed individuals, independent contractors and other businesses meeting size standards based on their North American Industry Classification System code. The Paycheck Protection Program’s maximum loan amount is $10 million with a fixed one-percent interest rate and maturity of two years. Additional information is available at www.SBA.gov/Coronavirus.
“These loans will bring immediate economic relief and eight weeks of financial certainty to millions of small businesses and their employees,” says SBA Administrator Jovita Carranza. “We urge every struggling small business to take advantage of this unprecedented federal resource—their viability is critically important to their employees, their community and the country.”
The loans are available to cover up to eight weeks of average monthly payroll (based on 2019 figures) plus 25 percent and payments are deferred for six months (interest does accrue). The SBA will forgive the portion of loan proceeds used for payroll costs and other designated operating expenses for up to eight weeks, provided at least 75 percent of loan proceeds are used for payroll costs. Eligible expenses for the eight-week forgiveness include:
- Payroll costs, excluding the prorated portion of any compensation above $100,000 per year for any person. Payroll costs include salary, commissions, tips; certain employee benefits including sick leave and health care premiums, and state and local taxes.
- Mortgage interest (not prepayment or principal payments) and rent payments on mortgages and leases in existence after February 15, 2020.
- Utilities such as electricity, gas, water, transportation, phone and internet access for services that began before February 15, 2020.
- Additional wages paid to tipped employees.
The SBA Houston District Office is providing the latest information from the administration to help small businesses with their economic recovery from the effects of the coronavirus through a series of webinars all week long. The webinars share information on how to apply and where to get additional help with preparing and applying for an SBA Economic Injury Disaster Loan and the Paycheck Protection Program. Click here for more information.
Find a breakdown on provisions of the CARES Act and links to related webinars on PPAI’s coronavirus information page here.