An additional $310 billion Paycheck Protection Program funding is now available, and the Small Business Administration will resume accepting PPP loan applications on Monday, April 27 at 9:30 a.m. CST from approved lenders on behalf of any eligible borrower.
The Paycheck Protection Program and Health Care Enhancement Act also provides additional $50 billion in funding for SBA Economic Injury Disaster Loan (EIDL) loans and emergency EIDL grants. Small businesses that applied for the first PPP loan but did not receive approval or an E-Tran number before the funding ran out can contact their banker to resume processing of the application.
Distressed businesses in need of COVID-19 emergency funding can resume their application process by contacting their bank and financial advisors, having a complete loan application prepared, along with the payroll and financial information required.
Expectations are that the urgently needed PPP loan money will be quickly depleted, as they were before. Information can be found through the SBA website here: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options.
About the Paycheck Protection Program and Health Care Enhancement Act
On Friday, April 24, 2020, the President signed into law: H.R. 266, the “Paycheck Protection Program and Health Care Enhancement Act,” which provides additional fiscal year (FY) 2020 emergency supplemental funding to increase amounts authorized and appropriated for commitments for the Paycheck Protection Program authorized under section 7(a) of the Small Business Act, economic injury disaster loans and emergency grants under the CARES Act, to fund hospital and provider recovery and testing, and for other purposes.
The bill is designed to provide additional funding for small business loans, health care providers, and COVID-19 testing, as authorized by the CARES Act (Public Law 116-136) and by section 7(b) of the Small Business Act.
Paycheck Protection Program funds
Most notably, the Interim Stimulus Plan adds another $310 billion to the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). The CARES Act originally allotted $349 billion to the program, but those funds were depleted in less than two weeks.
The PPP program is available to many U.S. small businesses — including sole proprietors, self-employed individuals, independent contractors and nonprofits — affected by COVID-19. Businesses can qualify for 100% loan forgiveness for amounts used for payroll costs, mortgage interest, and rent and utility payments during the eight weeks after receipt of the loan, as long as no more than 25% of the loan proceeds are used for nonpayroll costs.
Borrowers also must maintain staff and payroll to qualify for full forgiveness. Loan forgiveness will be reduced if salaries and wages are reduced by more than 25% for any employee who made less than $100,000 annualized in 2019. The interest rate on the nonforgiven portion of a PPP loan is 1%, and the loans run two years. All payments are deferred for six months, but interest will continue to accrue. Borrowers can prepay without penalties or fees.
Small businesses generally are defined as those with fewer than 500 employees. But, for businesses in the hotel and restaurant sector, the CARES Act applies the 500-employee threshold on a per-physical location basis. That explains how large businesses with easier access to alternative funding sources, such as Shake Shack and the parent company of Ruth’s Chris Steak House, obtained PPP loans in the first round of lending. (Shake Shack and the parent company of Ruth’s Chris Steak House have since pledged to return their $10 million loans.) The new law leaves this “loophole” intact.
Some small businesses also ran into problems when applying for the first round because they didn’t have existing credit relationships with major financial institutions. The new law aims to remedy this problem by carving out $60 billion of the additional funding for smaller lenders. Specifically, it designates $30 billion of the $310 billion for banks and credit unions with $10 billion to $50 billion in assets and another $30 billion for institutions with less than $10 billion in assets.
The Interim Stimulus Plan also adds $50 billion in loans and $10 billion in grants to the SBA’s Economic Injury Disaster Loan (EIDL) program. And it extends EIDL relief to agricultural businesses with no more than 500 employees.
Under the CARES Act, small businesses with fewer than 500 employees experiencing a temporary loss of revenue due to COVID-19 can obtain advances of up to $10,000 within days of a successful application; the loan advance doesn’t have to be repaid. The SBA has simplified its existing EIDL application process and relaxed the credit standards in light of the COVID-19 crisis.
The interest rate on EIDLs is 3.75% for businesses, and businesses can borrow up to $2 million. Repayment periods can run as long as 30 years, determined on a case-by-case basis based on the borrower’s ability to repay. The CARES Act provides an automatic one-year deferment on repayment, but interest begins to accrue when the proceeds are disbursed.
Preparing for another round of stimulus
Congressional leaders Nancy Pelosi and Mitch McConnell, Treasury Secretary Steven Mnuchin and President Trump have made clear that another stimulus package is already in the works. The provisions being discussed are wide ranging. For example, democrats hope to secure support for essential workers and state and local governments and address food aid, election security and funding for the U.S. Post Office. The president has indicated a preference for infrastructure spending, a payroll tax cut and bigger tax breaks for business meals and entertainment. We’ll keep you posted on the latest developments.
Frequently Asked Questions
The Small Business Administration (SBA), in consultation with the Department of the Treasury, intends to provide timely additional guidance to address borrower and lender questions concerning the implementation of the Paycheck Protection Program (PPP). The Treasury Department has created a link to their own FAQ document, that will be updated on a regular basis.
For official guidance, go to The CARES Act | Assistance for Small Businesses page.