On March 27, 2020, the U.S. Federal government officially enacted The Coronavirus Relief and Economic Security Act (CARES Act) which earmarked $2 trillion in relief funding for American citizens and businesses impacted by the COVID-19 pandemic. As a supplementary measure to the CARES Act, President Trump signed an additional bill on April 3, 2020 which gave the Small Business Administration (SBA) authority over the newly-established Paycheck Protection Program (PPP) – a program aimed at lending assistance to many small businesses requiring extra funding to help them maintain their operations during the uncertainty of the outbreak. In less than two weeks, however, over 1.5 million applications from small businesses flooded the system and rapidly exhausted the $349 billion that had been set aside to provide low-interest, penalty-free loans to small businesses in need. Small business borrowers that are looking to secure a PPP loan must certify, in good faith, that they require the loan in order to maintain their business’ operations, taking into account their current business activity and their ability to access other sources of liquidity.
On April 21, 2020, recognizing that more capital was needed to process as-yet unfulfilled Paycheck Protection Program loan requests for small businesses, the Senate voted to approve additional funding. The House of Representatives followed suit by voting to approve the provisional relief package, which was finalized by the President on April 24, 2020. The $484 billion package includes added PPP capital but also sets aside funding for hospitals and health care providers for expenses related to coronavirus testing.
$370 billion of the newly-released funding will go towards SBA-administered programs geared towards small businesses. Of that, $310 billion is to be exclusively dedicated to processing loans applied for by small businesses through the Paycheck Protection Program. While $250 billion will be put towards replenishing funds within the PPP, the remaining $60 billion will be made available only to smaller FDIC-insured banks, credit institutions, and other lenders seeking outside funding. The $60 billion will be evenly split with $30 billion to be used for institutions with between $10 billion and $50 billion in assets and the remaining $30 billion to be used for institutions with assets of less than $10 billion.
In addition, another $60 billion will be put towards the Small Business Administration’s Economic Injury Disaster Loan Program. This program affords small businesses the ability to apply for loans of up to $2 million (with interest rates of 3.75% for small businesses and 2.75% for nonprofits) that can be used to pay fixed debts, cover payroll, and to pay incoming bills that can’t otherwise be covered as a direct result of impacts of the disaster. $10 billion of the $60 billion must be attributed to small business grants to be used for disaster relief. The grants have a limit of $10,000 and the recipient is not obligated to repay the grant monies.
It has not yet been announced when this additional funding will be made available to the public or if the original PPP loan approval guidelines will change. We will keep you updated as more information becomes available.
To learn more about SBA PPP loans, see more details in our earlier article, Paycheck Protection Program Establishes Loans to Help Small Businesses.
If you need guidance on whether or not your small business qualifies for an SBA Paycheck Protection Program loan or help in determining if a loan would benefit your business, please contact your Untracht Early advisor.