2. Learn as much as you can about the Paycheck Protection Program and other options borrowers may have.
SBA officials encourage lenders to find out as much as possible to prepare members for applying and to dispel rumors or misunderstandings about the application process.
The SBA Paycheck Protection Plan provides loans of up to $10 million that are 100% guaranteed by the SBA in order to encourage employers to retain employees or bring laid off workers back on the payroll. They are unsecured loans due in 2 years with a fixed interest rate of 1% (initially, the SBA and Treasury said they would be 0.5%, but raised the rates on April 2). They require no collateral or personal guarantees, and no upfront borrower fee payable to the SBA. Another major difference from the regular 7(a) program is that borrowers don’t have to show that they cannot obtain credit elsewhere.
The lender pays no ongoing service fee on the outstanding balance of the loan through June 30, and the SBA will pay a processing fee to the lender. The amount of the loan is determined, in general, by taking the monthly average of the last 12 months of payroll and multiplying it by 2.5. Payroll costs will be capped at $100,000 annualized for each employee, and only 25% of the forgiven amount may be for non-payroll costs. Borrowers receiving and Economic Injury Disaster Loan (EIDL) must subtract that amount from the PPP loan amount.
The new loan program expands on the 7(a) definition of eligibility. In addition to small businesses, borrowers can include nonprofits, self-employed people (with or without workers), sole proprietors, and independent contractors. Borrowers must attest that they need the funds to keep operating, and that they will maintain the number of full-time-equivalent workers used in determining the loan amount.
All loans for the Paycheck Protection Program will be approved by lenders’ delegated authority, said John Miller, Deputy Associate Administrator for the Office of Capital Access, during the ABA webinar. “You’ll go into E-Tran, enter the loan data parameters and will receive a loan number from the SBA, which is your approval,” he said. That will be the case for both lenders currently approved as Preferred SBA Lenders and those that are not, in order to expedite processing.
Payments on loans will be deferred for six months, and the amount of loan forgiveness is determined by the amount of loan proceeds used for payroll, mortgage interest, rent, and utilities during the eight-week period after loan origination. The CARES Act had said payments could be deferred for up to a year, but the interim final rule shortened the deferral period.
SBA officials have also noted that new money would be available for SBA Express Loans, with the maximum amount available for those increased to $1 million from $350,000, and for the Economic Injury Disaster Loan Program (EIDL). Learning details about all of the options available will make it easier for lenders to match the right loan to each borrower's needs.