April 13, 2024


Delighting finance buffs

Coronavirus: What’s in the US small business rescue program?

Amid confusion over a $349 billion rescue program for small businesses struggling to survive the coronavirus pandemic, the US Treasury released guidelines it hopes will pave the way to getting the spigots flowing on Friday, as promised.

The Paycheck Protection Program, a key part of the $2.2 trillion package approved by Congress last Friday, provides funds to businesses that have fewer than 500 employees.

The aim is to help the companies keep paying their employees and their basic bills during the shutdowns, so that they are able to reopen quickly when public health allows. The loans will be forgiven if they are used mainly to cover employee salaries, but can also be used to cover some overhead.

Highlights of the program, detailed in a 31-page document here on Thursday evening, follow:


The program allows companies to borrow 2.5 times their average monthly payroll, up to $10 million, but neither firms nor lenders knew exactly how that would be calculated. The guidelines spell it out with examples.


Borrowers must use 75 per cent of the loan for payroll, the equivalent of eight weeks of pay. The idea is to make the program do what Congress intended, which was to preserve jobs. Other uses of so called covered loans include utilities and interest on other loans (though not principal payments), as well as health insurance and rent. Loans used within these limits will be forgiven.


Loan terms will be two years, shorter than the 10 years earlier anticipated that Treasury said is consistent with expectations the crisis will pass. The interest rate is set at 1 per cent, well above the 0.23{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} yield on the two-year Treasury note, helping provide ample inducement for lenders to participate, the guidelines said.


Lenders can sell the loans back to the Small Business Administration after seven weeks, allowing banks to exit the loans quickly and recoup their funds. Banks are paid a fee for the loans as much as 5 per cent but some were concerned they would d be stuck with the loans bearing only 1{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} interest for an extended period.


Banks, credit unions and SBA lenders are all allowed to lend under the program. Fintech companies may also be eligible as “non-depository financing providers,” according to the guidelines.


The guidelines direct lenders to submit SBA Form 2484 along with payroll documentation to get approval from the government to issue the loan, as well confirmation of the government’s 100 per cent guarantee of that loan.

A Google search at 8:30 pm Thursday of the SBA site and of the World Wide Web turned up only a draft of the form. “Nobody can make a loan without it,” said Kabbage’s Sam Taussig.

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