The U.S. House of Representatives passed legislation Thursday that will provide $370 billion in additional pandemic-relief funding for small business as part of a larger aid package.
President Donald Trump is expected to quickly sign the $484 billion Paycheck Protection Program and Health Care Enhancement Act, which was approved by the Senate on Tuesday. Most of the small business funding, $310 billion, will replenish the Paycheck Protection Program (PPP), which is administered by the U.S. Small Business Administration (SBA) and provides forgivable loans to certain types of businesses.
The $310 billion for the PPP includes $60 billion in loans to be made by small banks, credit unions, minority-owned banks, and other small lenders. Of that total:
- $30 billion is for loans by FDIC-insured banks and credit unions that have assets between $10 billion and $50 billion.
- An additional $30 billion is for lenders with less than $10 billion in assets. Those include community banks, credit unions, and community development financial institutions, which provide loans to low-income communities and to people who lack access to financing.
Another $60 billion in small business funds not included in the PPP program will go to the SBA’s Economic Injury Disaster Loan program, which provides working capital loans of up to $2 million that small businesses may use to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid because of the impact of a disaster. The interest rate is 3.75% for small businesses and 2.75% for not-for-profits. Of that $60 billion, $10 billion will go to small business grants of up to $10,000 for disaster relief that do not have to be repaid.
It was not immediately clear when the $310 billion in new PPP funds would become available or how long they would last. It took just 12 days for the initial $349 billion in PPP funding to be exhausted.
In other developments related to the PPP program, the Treasury Department, in response to concerns that PPP loans were being made to borrowers with otherwise adequate sources of liquidity, added the following to its Frequently Asked Questions Wednesday:
Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?
Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. (Emphasis added)
Also, some members of Congress have expressed concerns that the funds were not being used as intended and at least one Senate Committee Chairman has threatened “aggressive oversight into the use of the PPP.”
As always, we are here for you if you wish to discuss any of the specifics of PPP or SBA’s loans. Our offices are closed to clients and visitors but we can be reached by phone or email: email@example.com.
Be safe, stay well!