A network of financial institutions is gearing up for one of the most ambitious economic relief programs in U.S. history as small businesses across the country weather the coronavirus and its fallout.
The $2 trillion federal coronavirus relief package signed last week, officially known as the CARES Act, includes nearly $350 billion for a small business loan program called the Paycheck Protection Program. The program is designed to get cash into the hands of suffering small businesses quickly, with less red tape and fewer guardrails than the SBA’s existing loan programs. It is designed to incentivize business owners to keep employees on the payroll by offering them loan forgiveness.
Business groups say lenders are moving as fast as they can to make the loans available.
“Right now our focus is on speed in terms of making sure these banks have the ability to get loans onto main street quickly,” said Tom Sullivan, vice president of small business policy at the U.S. Chamber of Commerce, a lobbying group that is working with lenders who will be distributing the funds, which are backed by a federal loan guarantee.
The new loan program is separate from existing federal loan programs, including the Small Business Administration’s disaster relief loans. To learn about the SBA’s other relief programs, visit the SBA’s covid-19 resource center or follow The Post’s federal disaster relief business loan Q&A.
Here are the details on how small-business owners can access the new federal Paycheck Protection Program. This article will continue to be updated as new information is made available.
Q: How do I apply for a small business loan through the Paycheck Protection Program?
The application has been posted on the Treasury Department’s CARES Act resource page as of Tuesday afternoon. After you gather the information described on the application form you should contact your bank or an approved lending institution to start the application process.
The Small Business Administration has a network of at least 1,800 approved lenders that process small business loans and intends to add more of them. If your bank is not an SBA-approved lender or you don’t have an existing banking relationship, you can contact the SBA to find one. Administration officials say the SBA is working on a geo-coded web page where you can view approved lenders near you, but as of Tuesday afternoon the web page was not live yet.
It is expected that most borrowers will be able to apply online through an approved financial institution, a senior administration official speaking on the condition of anonymity said Tuesday. If you are contacting a lender for the first time the loans are expected to be handled on a first-come-first-serve basis, one senior administration official said Tuesday.
Q: When will the new funding be made available to small businesses?
Treasury Secretary Steven Mnuchin said Monday that small business loans will be made available starting Friday. That goal was again confirmed Tuesday by senior administration officials, who spoke on the condition of anonymity.
Detailed application guidelines are also available on the Small Business Administration’s website.
Mnuchin and other administration officials say they are setting up a system for same-day loan approvals in which borrowers will be able to receive funds on the same day they submit an application. Since the approval process will be handled entirely by the lender, there is no separate review being conducted by the SBA.
“The application has been really stripped down from what we normally use in the SBA,” a senior administration official said Tuesday.
Even with the SBA’s review out of the way, same-day approvals will still be a challenge. Hicham Oudghiri, chief executive of a small-business-focused data analytics and fraud detection company called Enigma Technologies, said it would be difficult for most banks to meet that target without substantially increasing the risk of fraud. Most small businesses will take days just gathering the documents they need to apply, he said.
“Even the most sophisticated banks will have a hard time short cutting their processes to get money out the door this fast,” said Oudghiri.
Q: What costs will the new loans cover?
The new loans will cover payroll costs and employee benefits, mortgage interest incurred before February 15, 2020, rent and utilities under lease agreements in force before February 15, 2020 and utilities for which the service began before February 2020.
Payroll costs include salary wages, commissions and tips capped at $100,000 for each employee. It also includes benefits for vacation, parental leave, medical leave, sick leave, some other limited benefit categories. In some cases they also can cover interest on other debts.
Q: How do I prove that my losses are because of coronavirus?
The new loans are available to any business for which “current economic uncertainty makes the loan necessary to support your ongoing operations,” according to an SBA fact-sheet published Tuesday. Approved lenders will make a determination of need for your business based on SBA guidelines, but without a separate SBA review.
Q: Which businesses qualify under the Paycheck Protection Program?
Small businesses, nonprofits, tribal business concerns that meet the SBA’s standard business size definition and veterans organizations organized under 501(c)(19) with fewer than 500 employees are eligible for loans under the program. Self-employed individuals, independent contractors and sole-proprietors also are eligible. To receive a loan, your company must have been in business as of Feb. 15.
If you are in the food service business, the 500-employee cap is applied on a per-physical-location basis, according to a fact sheet published by the U.S. Chamber of Commerce.
There are criminal penalties of up to $1 million for submitting fraudulent information to a federally-insured lender.
Q: How much money can my business receive through the new loan program?
The Paycheck Protection Program provides small business loans of up to $10 million to cover payroll and certain other expenses, or 2.5 times your total payroll expenses for the loan period. Other SBA loan programs, including the federal disaster relief program, offer much smaller loans.
Q: What sort of thing could disqualify me?
The application includes a long list of potential disqualifying factors. You cannot receive a paycheck protection program loan if your business or any of its owners have previously been suspended, debarred, proposed for debarment, declared ineligible, or were voluntarily excluded from the loan program by a federal agency, or are presently involved in any bankruptcy.
You will be excluded from the program if you have ever taken a loan from the SBA that subsequently caused a loss to the government, is currently delinquent, or resulted in default. The application also excludes businesses in which any 20 percent owner is an individual who is currently subject to criminal charges, or who has previously been convicted or otherwise punished for a crime against a minor.
Q: What information should I prepare?
You will be asked to provide basic identifying information for your business, your business TIN number, your average monthly payroll, the number of jobs supported by your company and what specifically you want to use the loan money for. You will also be asked to list all owners who hold at least a 20 percent ownership stake in the company and affirm that they are not party to federal crimes.
You will also be asked to provide the lender with documentation regarding your employee headcount over time as well as your payroll costs.
Click here to access the application form.
Q: What time period is covered by Paycheck Protection Program loans?
The new loans apply to costs incurred from Feb. 15 through June 30.
Q: What’s the interest rate?
The Treasury Department is initially setting the loan rate at 0.5 percent. However the CARES Act caps the interest rate for the Paycheck Protection Program at 4 percent, so it is possible the interest rate could increase.
Q: What will the payment schedule look like?
The first payment will be due after six months and the full loan will be due after two years, according to SBA informational materials.
Q: It looks like there are a lot of different federal loan programs. Can my business receive funding through more than one?
Yes. Businesses that have pending or existing SBA disaster assistance loans can still receive funding through the Paycheck Protection Program as long as the loans are not being used for the same thing. You also can still apply for a loan if you have an insurance claim pending. A single business cannot apply for more than one Paycheck Protection Loan, however.
Q: What if I’m still paying off a different SBA disaster loan?
The Small Business Administration has made all deferments through Dec. 31 automatic. That means small-business owners do not have to contact the SBA to request deferment. If you have an existing or pending loan through the SBA’s disaster assistance loan program, you can refinance it into your Paycheck Protection Program loan, possibly lowering your interest rate.
Q: Can the loan eventually be forgiven?
Yes. The program includes loan forgiveness covering costs for the first eight weeks of the loan for companies able to keep employees on payroll or continue paying bills throughout the coronavirus crisis.
The amount of loan forgiveness will include payroll costs for individuals below $100,000 in annual income, mortgage and rent obligations, including interest and utility payments. The total amount will be reduced if your workforce is drawn down through attrition or if wages are reduced. If you are forced to lay off employees because of economic conditions, you may be able to preserve some of your loan guarantee by hiring them back.
It is expected that at least 75 percent of the costs forgiven come from payroll, according to the SBA fact-sheet released Tuesday.
Eligibility for loan forgiveness starts eight weeks after the loan origination date. There is a maximum 10-year maturity after application for loan forgiveness.
Q: This article did not answer my question. How can I find more information?
If you would like to suggest an additional question for this article, please email the author at Aaron.Gregg@washpost.com.
Your primary points of contact for information on federal loan programs should be the U.S. Small Business Administration or an SBA-qualified financial institution. You can reach the SBA by email at email@example.com or by phone at 1-800-827-5722. The agency has reported receiving “unprecedented” interest in its loan program in recent weeks but is working to set up new call centers to handle the flood of new inquiries.
The Treasury Department has also posted its own fact-sheet on the program on its CARES Act resource page. Several business groups also have published fact sheets on the SBA’s loan programs, including the Economic Innovation Group and the U.S. Chamber of Commerce.
You can also follow your regional SBA administrator on Twitter for periodic updates. There are 10 SBA regions and you can find yours by clicking here.