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More Funding and Refining for the Paycheck Protection Program

For businesses hanging on by a thread, getting money to help them through the COVID-19 pandemic couldn’t come soon enough. Recent developments should provide some light at the end of the tunnel.

The U.S. Small Business Administration (SBA) Paycheck Protection Program (PPP), part of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, launched April 3, 2020. The program was funded with $350 billion allocated for borrowers to use largely for payroll to keep people employed. The money lasted about two weeks, which was not unexpected by lawmakers.

On April 24, 2020, a new round of funding was approved that added $310 billion more to the coffers. Many banks already had applications ready when the program opened up for a second time April 27, 2020. This time, the SBA issued important new guidance covering provisions aimed at fixing previous holes and gaps. Highlights include:

  • Clarification regarding qualified companies
    • For public and private companies with substantial market value and access to capital, it is unlikely that they will be able to make the required good faith certification.
    • Those companies that applied for a loan prior to this new guidance have until May 7 to pay back the loan in full if they feel they will not be able to certify under the stipulated conditions.
  • $60 billion reserved for small community lenders
  • Provisions to manage the flow of loans, including:
    • A cap of $60 million per bank for the program
    • The use of E-Tran, the SBA’s system for processing loans, to control the pace of applications

Almost immediately, the system was once again overwhelmed, a likely indicator of how badly businesses need help right now.  The SBA announced that the system was fine, but it was limiting the number of applications per hour to allow the banks to access the program.

Here is a reminder of the basics of the program:

  • Applies to businesses with 500 employees or fewer
  • Approved uses include benefits, mortgage interest, payroll, rent, and utilities
  • Forgiven with 75% use for payroll
  • Uses SBA-approved lenders only
  • Maximum amount equals the lesser of $10 million or 2.5 times your average monthly payroll
  • No collateral or guarantee required
  • Term of 2 years
  • Deferral term of 6 months

While the process may be a bit frustrating for a while, hope is on the horizon. Amid the many facets of this pandemic, patience and perseverance will continue to be required.