Hundreds of lenders — from national institutions to small-town banks — are preparing for a deluge from small businesses this month seeking financial help from the coronavirus economic fallout. The $2 trillion CARES Act signed into law last month by President Trump includes $349 billion for a federal small business loan initiative called the Paycheck Protection Program.
The program is designed to get cash into the hands of HFA members and other small business owners quickly, with less red tape than the SBA’s existing loan programs. The Home Furnishings Association’s Washington representative Chris Andresen said the purpose of the loans is clear: To incentivize business owners to keep employees on payroll by offering owners loan forgiveness. How do HFA members apply? What can they expect from the application process? We talked to bank officials and other lending experts to get you answers to commonly-asked questions.
Q: Who’s eligible for the small business loans?
Any business with 500 or fewer employees.
Q: What’s the most I can borrow?
That depends on your business size and the number of employees you had on your payroll on Feb. 15. The Paycheck Protection Program provides small business loans of up to $10 million to cover payroll and certain other expenses. A spokeswoman for Wells Fargo said other SBA loan programs, including the federal disaster relief program, are offering smaller loans.
Q: What should I do to prepare my application?
Wells Fargo is asking its customers to gather their payroll documentation now as well as mortgage and rent expenses. That means verifying the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments and covered utilities for the eight weeks after getting this loan. Owners should also check their credit. Although the SBA understands that some businesses’ credit already has begun to suffer from the crisis, your personal credit score and FICO SBSS score will still be part of the decision-making process. The SBA says business owners will also need to certify in good faith that your current economic uncertainty makes the loan necessary to support your ongoing operations and that the funds will be used to retain workers and maintain payroll or to make mortgage, lease and utility payments. You will also need to certify that you have not and will not receive another loan under this program.
Q: When is my loan due?
In two years.
Q: Can I pay my loan earlier than two years?
Yes. There are no prepayment penalties or fees.
Q: Do I need some sort of collateral?
No collateral is required.
Q: Do I need to personally guarantee this loan?
No. There is no personal guarantee requirement. However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges.
Q: The PPP covers my employees’ paychecks. What about my salary?
Andresen believes business owners’ W2 paychecks are included, up to the $100,000 maximum.
Q: What about independent contractors? Are they covered?
Independent contractors are not included in your employer payroll costs. They can apply for their own loan.
Q: Is my bank on the list for applying?
There is no master list yet, according to Wells Fargo, but more than 1,800 are participating. Tom Sullivan, vice president of small business policy at the U.S. Chamber of Commerce, a lobbying group that is working with participating lenders, said HFA members should first contact their bank to see if it is an SBA-approved lender. Sullivan said it’s possible banks will prioritize working with their existing clients first. If your bank is not an SBA-approved lender, you can contact the SBA to find one.
Q: How are the loans “forgivable”?
Business owners get to keep the money if they use the funds to keep paying employees who earn less than $100,000 a year, said Andresen. Funds used for mortgages interest, rent and utilities also can be forgiven.
Q: When will the new funding be made available to small businesses?
Treasury Secretary Steven Mnuchin said Monday that small business loans will be made available starting Friday. Detailed instructions on how to apply are to be added to the Small Business Administration’s website soon, Mnuchin said. As of Wednesday afternoon, the instructions had not been posted.
Q: How long will it take to determine how much my business is eligible for and when will I receive the loan?
Good questions. Andresen said the stimulus package includes funding for administrative costs, needed because of the high volume of applications. Mnuchin has said a system will be set up for same-day loan evaluation, but there are skeptics. Sullivan of the U.S. Chamber of Commerce said it will be difficult for most banks to evaluate and process loan applications so quickly without increasing the risk of fraud. A Wells Fargo official said it will likely take “a week or two” to get PPP loans flowing into the hands of retailers, but the wait could be longer. “The volume of loans is what has everyone not committing (to a given time), said Sullivan. “Lenders are still working on a process to handle the applications.”
Q: What will my interest rate be?
Sullivan said there is a flat interest rate of 0.5 percent
Q: It looks like there are a lot of different federal loan programs. Can my business receive funding through more than one?
Yes. Businesses that have pending or existing SBA disaster assistance loans can still receive funding through the Paycheck Protection Program as long as the loans are being applied to different cost centers, said Andresen. Sullivan said small business owners can still apply for a loan if they have an insurance claim pending.
Q: What if I’m still paying off a different SBA disaster loan?
The SBA has automatically deferred all loan payments through Dec. 31.
Q: What if I still have questions?
Your primary points of contact for information on federal loan programs should be the U.S. Small Business Administration or an SBA-qualified financial institution. You can reach the SBA by email at firstname.lastname@example.org or by phone at 1-800-827-5722. The agency is receiving a high volume of calls this week but is working to set up new call centers to handle the flood of new inquiries. Its lending webpage is here.