Paycheck Protection Program opens for business

By CBJ News Staff

Nearly $350 billion in small business relief is set to begin going out the door with the April 3 launch of the Paycheck Protection Program (PPP), part of the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act.

Though banks are nervous about how they will handle the crush – and still have a number of questions about how the program will work as of this morning, according CNBC – the Treasury Department and the Small Business Administration late Tuesday released an overview for borrowers and a sample loan application.

“This unprecedented public-private partnership is going to assist small businesses with accessing capital quickly,” SBA Administrator Jovita Carranza said in a release. “Our goal is to position lenders as the single point-of-contact for small businesses – the application, loan processing, and disbursement of funds will all be administered at the community level.”

Ms. Carranza added that “speed is the operative word,” vowing that applications for the emergency capital would begin this week.

The new loan program is aimed at helping small businesses with their payroll and other business operating expenses. The loans carry no collateral requirements, personal guarantees or SBA fees, with all loan payments deferred for six months. Most importantly for hard-hit businesses, the SBA will forgive the portion of the loan proceeds used to cover the first eight weeks of payroll costs, rent, utilities and mortgage interest.

“Treasury and the Small Business Administration expect to have this program up and running by April 3 so that businesses can go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved on the same day,” said Treasury Secretary Steve Mnuchin. “The loans will be forgiven as long as the funds are used to keep employees on the payroll and for certain other expenses.”

Small businesses and sole proprietors can begin applying for PPP loans today, according to information provided by the Cedar Rapids Metro Economic Alliance, while independent contractors and self-employed individuals can apply beginning April 10. The Economic Alliance said it recommends borrowers check with their current lender to see if they are a participating SBA 7(a) lender, bank or credit union, and is working on gathering a complete list of participating lenders.

Here is more detail on how the PPP is designed to work:

What is the PPP? The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. The SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest or utilities. The program will be available through June 30.

Who is eligible? The program is for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private nonprofits or 501(c)(19) veterans organizations affected by COVID-19.

Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries, and businesses in the hospitality and food industry with more than one location could also be eligible at the store and location level if the store employs less than 500 workers. This means each store location could be eligible.

How do I apply? Borrowers can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union or participating Farm Credit System institution. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Lenders may begin processing loan applications as soon as Friday.

What’s in the fine print? Loans will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. Loans have a maturity of two years and an interest rate of 0.5%.