PPP Loans: Round Two – More Money for Small Businesses
April 28, 2020: As we await further guidance, please note that this blog is subject to change.
The roll out of the second wave of emergency funding for small businesses got off to a rocky start Monday, Apr. 27.
Lenders trying to upload applications for the Paycheck Protection Program (PPP) reported widespread error messages and slow processing.
The issue centered on the online system used by the Small Business Administration (SBA) to accept loan applications and mirrored technical issues that occurred when the first round of PPP loans was processed on April 3, 2020.
The loans, part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, are administered by the SBA with funds provided by third-party lenders to be used to cover payroll, mortgage interest and utilities. When the original $349 billion in funding ran out in less than two weeks, Congress approved additional funding of $484 billion through the Paycheck Protection Program (PPP) and Health Care Enhancement Act which President Trump signed into law on April 24, 2020.
Following criticism over who did and did not receive funds in the first round, the second round of PPP loans carves out funding for specific uses including health care and testing.
Funds for small businesses
To ensure that more small businesses have access to PPP loans, here’s how the $370 billion in funds break down:
- $310 billion - to replenish the original PPP program.
- $60 billion - slated for smaller community lenders to ensure that more PPP loans are issued to small businesses that were shut out of the first round of funding.
- $30 billion - for banks and credit unions, including minority depository institutions (MDIs) which have between $10 and $50 billion in assets and are PPP lenders.
- $30 billion - for banks and credit unions with less than $10 billion in assets. Included in that group are MDIs, Community Development Financial Institutions (CDFIs), certified development companies (CDCs) and microlenders that are PPP lenders.
Funds for Health Care
- $75 billion - to the U.S. Department of Health and Human Services to reimburse providers for the cost of treating Covid-19 patients. This includes costs for diagnosis, testing and treatment.
- $25 billion - for testing and to help develop a national plan to aid states, localities, tribes and the CDC with testing protocols.
Funds to the SBA
- $50 billion - SBA Economic Injury Disaster Loans (EIDL).
- $10 billion - EIDL grants.
- $14 million - administrative costs related to the PPP and other SBA programs funded in the bill.
No changes to loan requirements
While the Enhancement Act has added funds to the PPP program, it does not change the original framework and requirements. The loan terms remain 2 years with a six month deferral and 1% interest rate. Borrowers still need to use at least 75% of the loan proceeds for payroll costs with the rest of the money designated for mortgage interest, other debt, benefits and utilities. Loans are still forgiven if the borrower meets certain criteria centered around maintaining employees and compensation levels.
What happens when the money runs out?
Given the high demand for these loans, many lenders believe this current round of funding will likely last no longer than a week with some suggesting the funds will be depleted in just two or three days. Additional stimulus packages are expected, but how they will look remains to be seen. Congress is feeling pressure from several groups to be included in the next round of funding including state and local governments and some members of Congress are backing the idea of additional stimulus checks for individuals.
Count on Herbein + Company to keep you up to date as more information becomes available. We encourage you to subscribe to our blogs.
For additional information contact us at info@herbein.com. Article compiled by Keith Hoffman.
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