By Neil Hare
Updated May 18, 2020: The U.S. Treasury Just Provided Guidance On A Safe Zone For PPP Lending. See New Treasury guidelines provide safe harbor for PPP loans.
On Friday, April 24, President Trump enacted a new bill providing a much-needed additional $ 310 billion in the Paycheck Protection Program (PPP), created as part of the CARES Law (Coronavirus Aid, Relief and Economic Security Act) to help small businesses keep their employees on the payroll, and Economic Injury Disaster Loans (EIDL).
Of the $ 310 billion, $ 60 billion is intended to replenish the EIDL program and $ 250 billion for PPP loans, including $ 60 billion reserved for community banks and community development financial institutions (CDFIs). The first round of funding under the $ 349 billion CARES Act lasted about a week before drying up and that round is only expected to last four to six days.
Can your business claim and receive some of this money?
The reality is that most American businesses will not receive any of these relief funds. In the first round, 1.6 million companies received approval, most still awaiting funding. The process remains the same for PPP and you can access frequently asked questions in Newly Available CARES Act Loans: 10 Things Small Businesses Should Know.
Here are the top three things to consider when determining whether you will receive funds and increase your chances of success:
- If you received an SBA certification number in the first round, you will receive funds. Your bank goes through the subscription process and you should receive the funds within 10-14 business days.
- If you have not received an SBA certification number, but your request has been accepted by your bank, you remain in the queue to receive funds. The program remains on a first come, first served basis. You should contact your bank and see if they can get your certification through the SBA.
- If you did not apply in the first round, you should apply as soon as possible for PPP and EIDL loans. Unfortunately, many banks are not accepting new applications because they already have a lot in the pipeline. You can search for participating lenders on the ASB website, or try fintech companies like PayPal, Intuit, Square, and OnDeck.
Small community banks seem to have better luck with faster processing than large national banks, so you might want to start there. You can still apply for EIDL loans on www.sba.gov/disaster once the app is back up and running because it was closed due to overwhelming demand.
What is different about this new relief bill?
The most significant change in this new round came in the updated Treasury guidelines, requiring borrowers to certify in “good faith” that they do not have access to additional sources of capital and that, like the provides for the law, “[c]The current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations.
This clarification, while still somewhat fuzzy to really define, was due to the public backlash sparked by big chains and publicly traded companies like Shake Shack, Ruth’s Chris Steak House and Sweetgreen getting significant funding in PPP Round 1 These companies and others have pledged to return these funds.
The new guidelines state that any borrower who returns funds by May 7, 2020 will be deemed by the SBA to have made their certification in good faith and to avoid any future reviews or penalties. The SBA reserves the right to verify loan applications, and penalties for misrepresenting SBA loan forms can be severe, including large fines and criminal charges.
It should be noted that the CARES Act has specifically waived the traditional requirement for SBA loans that the applicant shows that he or she does not have access to additional forms of credit. Congress rightly believed that this would cause significant delays in distributing funds to businesses. However, under the law of unintended consequences, he left many large companies with access to capital to apply for these loans.
Outside of publicly traded companies, it would be hard to imagine the SBA finding bad faith on behalf of a company that has been forced by the government to shut down due to COVID-19 and has kept employees on the job. payroll, even with other sources of credit.
In addition to this change, the new law also attempts to address claims that the distribution of the first round was unfair and disproportionately rewarded large corporations at the expense of businesses owned by women, minorities, veterans and Native Americans. . As PPP loans were and remain on a first come, first served basis, they inherently favor businesses with more resources, such as in-house CFOs and accountants, CPAs and lawyers, and have a strong personal relationship. with a bank. These companies have been able to understand the process, compile the necessary documentation quickly, submit approval requests much faster, and be on the front line.
To address this problem, the new law provides $ 60 billion for small lenders, including community banks and CDFIs, which serve low-income and disadvantaged communities. The $ 60 billion will be split equally between institutions with assets of less than $ 10 billion and those with assets between $ 10 billion and $ 50 billion. To be clear, it does not set aside any funds for underserved or disadvantaged businesses; it only reserves funds for credit institutions serving these markets. These companies have yet to apply and get online.
The additional $ 60 billion for the EIDL program provides $ 10 billion for grants and $ 50 billion for loans. The program initially offered a grant of $ 10,000 and up to $ 2 million in loans to fund business expenses during a disaster (the entire country has been certified as a disaster area due to COVID-19 ).
For now, the rules for canceling loans remain the same, although other regulations will certainly follow. The hope is to provide clear tests for lenders to assess which part of the loan needs to be canceled, so it is essential to keep meticulous records for the eight weeks following the arrival of funds. Again, the repayable portion of the loan includes payroll, rent and mortgage payments, and utilities. Anything not included and approved by the lender will need to be repaid over two years at 1% interest with the first payment deferred by six months.
If your business is kicked out again in Round 2, there could be a Round 3, although Treasury Secretary Steve Mnuchin claims it is, so apply in the queue anyway. One thing is certain, the coronavirus and its economic impact are uncertain.
I am president of Global Vision Communication, an agency specializing in strategic communications, marketing and advertising for professional associations, nonprofits, coalitions and businesses. I specialize in small business policy and have led small business awareness campaigns for large organizations such as Visa, MasterCard, US Chamber of Commerce, and US Department of Commerce. I am a writer, a member of a creative think tank, and an expert in communication and business strategy. I am a sought-after speaker at business events on Marketing and Communications, both inside and outside the Beltway. I am also the author of two novels, An Animal Cries and God in Hell’s Kitchen.