Alert / Retirement, Risk Management, Employee Benefits
Small-business loan program gets $310B boost in latest coronavirus-relief bill

April 23, 2020

The House passed a $484 billion relief package today, largely aimed at replenishing funds for the Paycheck Protection Program, which ran out of money last week. The Senate passed the legislation Tuesday, and President Donald Trump has indicated he will sign the measure into law.

The bill allocates $310 billion to the PPP, a small-business loan program to help small employers, generally those with less than 500 employees. PPP loans have proven popular, in part because the loans will be forgiven if used to meet payroll. The latest relief package also provides an additional $60 billion for a small-business emergency grant and loan program, and it directs $75 billion to healthcare providers and $25 billion to coronavirus testing.

Current and future status of the loan program

The program, intended to help employers maintain payroll, was overwhelmed with applications from the start. In the first two weeks after launch, the initial $349 billion in funding was exhausted, going to 1.6 million companies.

The PPP, while popular, has been criticized. One issue related to the difficulty minority- and woman-owned small businesses had in getting loans. To address this, the legislation reserves $60 billion in funds for lending by small and medium-sized banks and credit unions that tend to serve minority- and woman-owned small businesses.

Another critique of the PPP was that larger companies, including some public companies, managed to receive funds due to exceptions to the 500-employee limitation for franchises, restaurants and those in the hospitality industry. Congress was pressured to make changes that would exclude large employers from tapping into the newly allocated money. No specific changes were made by Congress, but the U.S. Treasury did release guidance today making it harder for large and public companies to have access to PPP funds. The Treasury guidance also provides a way for those companies that did receive loans to pay them back immediately.

Lockton comment: Eligible small businesses can apply for PPP loans by contacting an SBA-approved lender and completing the SBA application. We encourage employers to act quickly, as these funds are also likely to go fast.

Small-business emergency grant and loan program

In addition to the funding allocated to the PPP, the new legislation includes $60 billion for another Small Business Administration program, the Economic Injury Disaster Loan (EIDL) program. The EIDL is similar to the PPP, and businesses can obtain both an EIDL and PPP loan, but the EIDL has less favourable terms. An EIDL is not forgivable and may require personal guarantees and collateral as security. It does, however, provide for a $10,000 grant upon applying, which does not need to be repaid, even if the loan is denied. In addition to more funding, the legislation allows agricultural companies to qualify for the loans.

Lockton comment: The SBA is currently not accepting additional EIDL applications, due to a lapse in funding for the program. They are expected to reactivate the online application once funding is appropriated. Businesses can apply for EIDL funds through the SBA’s online portal and are encouraged to reach out to their financial institutions.

What’s missing and what’s next

While the latest coronavirus relief package does provide some additional funding for small businesses, it does not expand eligibility or address some of the key questions that have been raised. For example, private equity-owned small businesses are still unlikely to be eligible, and it is unclear how loan forgiveness will be affected by extended shelter-in-place orders or continued lagging demand.

 

Not legal advice: Nothing in this Alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Government Relations group are not privileged under the attorney-client privilege.

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