The U.S. federal $2 trillion coronavirus stimulus bill included a $349 billion relief for small businesses called the Paycheck Protection Program (PPP) to support job retention and other specified expenses. The PPP loan is an addition to the existing federal loan programs, including SBA’s traditional 7(a) loan and the Economic Injury Disaster Loans (EIDL) the administration also provides.

With thousands of applications pouring within the first week of going live, it is anticipated that the $349 billion in funds will be spoken for before the disbursement of funds is fulfilled.  The government is working on passing another bill to extend the capital available for the program up to an additional $250 billion, unfortunately, these efforts were blocked by the Senate in the first round.  However, replenishment of the PPP small business loan program may still occur later.

The intent of the program was to offer fast relief to American small businesses; the execution, however, did not go as fast as planned due to various challenges.  Many institutions are having trouble processing PPP loans through the SBA E-Tran portal.  The SBA issued an Interim Final Rule to provide guidance to lenders on processing and underwing; nevertheless, many lender questions persist.  The SBA is working on providing additional guidance needed for lenders. The U.S. Department of the Treasury continues to update their website with resources for both lenders and borrowers.

Based on Interim Final Rule, a business can apply for an EIDL in conjunction with the PPP loan if the use of funds is for different purposes.  Below is an overview of both programs, additional details can be found by clicking on the links.

Economic Injury Disaster Loan (EIDL) applications are taken and processed directly by the SBA Administration.  The program has a $10,000 advance component that does not need to be repaid and can be applied for while the borrower awaits for the Paycheck Protection Program Loan or SBA Economic Injury Disaster Loan.

Program overview:

• Loan amounts up to $2,000,000
• Available through December 2020
• 3.75% interest rate for for-profit business
• 2.75% interest rate for non-profit business
• Loan terms will not exceed 30 years
• Personal guarantees and collateral have been modified and/or eliminated
• Loan repayment may be deferred up to 4 years, currently through December 31, 2020
• Loan Forgiveness: funds used for payroll do not need to be repaid
• Loan proceeds are for working capital needs caused by the declared disaster and do not replace lost revenue, lost profits or fund expansions

Paycheck Protection Program (PPP) loan applications are taken by SBA 7(a) lenders who choose to participate in the program.  The program is open to small business and eligible non-profit organizations, Veterans organizations and Tribal businesses described in the Small Business Act.  The program is also available to individuals who are self-employed or are independent contractors if they meet program size standards.

Program overview:

• Loans up to $10MM
• Available through June 2020
• Eligible businesses for-profit and non-profit
• Business with 500 or less employees
• 1% interest rate for all businesses
• Loan term of 2 years
• 100% SBA Guarantee; guarantee fees waived
• No personal guarantee and collateral required
• Loan repayment maybe deferred for 6 months up to 1 year
• Loan Forgiveness: possible if majority of funds are used for payroll

• Loan proceeds are to be used for payroll costs, payment of interest on any mortgage obligation (excluding prepayment of, or payment of principal), rent, utilities and interest on any other debt obligation incurred before the covered period

The PPP program has the same eligibility requirements as the SBA 7(a) program with a few exceptions identified in the SBA Interim Final Rule.

Exceptions that are eligible:

• Non-profits with a 501(c)(3) or 501(c)(19) designation
• Religious organizations
• Businesses with a NAICS code starting with 72 can use the SBA size standard per location
• Franchises have been added to the SBA Franchise Directory just for the PPP program

Business primary engaged in lending are not eligible for the program unless they can meet the following limited circumstance and provide documentation to prove it:

• A mortgage servicing company that distributes loans and sells them withing 14 calendar days of loan closing is eligible
• Mortgage companies primarily engaged in the business of servicing loans are eligible
• Mortgage companies that make loans and hold them in their portfolio are not eligible

While everyone continues to monitor and weather the ever-evolving situation and effects of COVID-19, it should be said that lenders are working around-the-clock to meet the challenges faced by small business owners around the country. Understanding the vital need for relief funds, lenders continue to process the mass inflow of thousands of applications and have adjusted operations to be able to work as quickly as possible. COVID-19 has affected every business, across all industries making it an extremely difficult time for everyone. But, we are all working through it and will get through it together.