Breaking News—Late Thursday night, just before applications may be submitted for the CARES program, SBA changed the application, rendering the earlier applications obsolete. The new rules and application are attached here and here.
JACKSON, Tenn.—Washington may have taken a few more days than most liked to hammer out the CARES Act law, but getting the money actually flowing may be even more frustrating. That message comes from area bankers who are trying to wade the morass.
While there is at least one class of loan available directly through the SBA, the most beneficial lending will come via the Paycheck Protection Program (PPP). The PPP loans must originate with local banks or other SBA lenders. The PPP provides the largest loans and, in most cases, it appears some or all of the loan will be forgiven.
The bankers we sourced for this story say they’ve not yet been provided the details permitting them to make the loans. So, while the application submission date starts April 3, it is unclear when most will actually accept an application.
Who to see?
The PPP will be available through any “existing SBA lender or through any federally insured depository institution, federal insured credit union, and Farm Credit System institution that is participating,” the information sheet states.
Who is that? Most banks, for example, are approved SBA lenders, but those we spoke to said they’ve not been provided enough procedural detail to process a loan.
Business owners we interviewed said they are relying on their banks.
The application
The application is pretty simple, but requires other supporting documents
One banker said his bank would likely require certification of the loan applicant’s financial documents by an independent accountant or lawyer.
Professionals like lawyers and accountants who may help their clients prepare the application will be compensated by the government, another financial relieving feature of the program.
Who can apply?
All businesses including non-profits, veteran’s organizations, sole proprietorships, self-employed individuals, and independent contractors with fewer than 500 workers are eligible. Under some circumstances, businesses with more than 500 employees may be included.
How much can you get?
The loan application provides a simple calculation. It will be the based on one month of the applicant’s 2019 average payroll cost multiplied by 2.5. Last minute changes apparently deleted “contractors” or “1099” workers from eligibility.
What’s forgiven?
According to the information sheet, loan proceeds may be forgiven when used to cover payroll costs, most mortgage interest, rent and utility cost over the 8-week period after the loan is made. Employees and compensation levels must be maintained, though.
“Payroll costs are capped at $100,000 on an annualized basis for each employee,” the document reports.
“You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent and utilities…over the 8 weeks after getting the loan,” the document states. “You will also owe money if you do not maintain your staff and payroll.”
Other terms?
Any unforgiven loan balance will have a maturity of “not more than 10 years” and a maximum interest rate of 4% with an option to defer interest and principal payments for not more than one year.
Interestingly, there is no test for ability to repay.
When will you get your money?
It’s hard to say when money will begin hitting businesses checking accounts. And some applicants could be left out, because the money runs out.
How fast lenders can get the loans processed is still in question. The bankers we talked to for this story said they understand their bank will make the loan and the federal government will reimburse or guarantee the lending. Once the procedures are in place, that might speed up the disbursement of cash.
While there is nearly $400 billion set aside for small business nationwide, most speculate that money will go fast, potentially leaving out some that need it.
