SBA Relief Program Information
With the President signing the new $900 billion pandemic relief bill over the weekend, we thought it would be helpful to outline the re-opening of the SBA’s Paycheck Protection Program (PPP). Much of this is still in development, as the SBA has 10 days from the enactment date to issue new rules for the re-opening of the program. In addition, as many reports have noted, the act itself is over 5,500 pages, so careful analysis is ongoing.
PPP Part Two
The law provides $284.5 billion in new funding, on top of the $525 billion already distributed under the initial program. The new funding is available to both first time PPP borrowers as well as those that participated in the first round of loans. The re-opened program will accept applications through March 31, 2021.
First Time PPP Borrowers:
- Maximum loan amount is $2 million (reduced from $10 million maximum in PPP 1)
- Expanded list of eligible borrowers to now include housing cooperatives, newspapers, broadcasters and radio stations
- Publicly traded companies are prohibited from participating in the PPP
- Revised lender fee structure:
- Loans up to $50,000 – lesser of $2,500 or 50% of principal amount
- Loans from $50,000 to $349,999 – 5% of principal amount
- Loans $350,000 or higher – 3% of principal amount
- Establishes certain set asides for funding institutions and borrowers:
- $15 billion in funding for CDFIs and MDIs
- $15 billion in funding for depository institutions under $10 billion in assets
- $35 billion in loans for first time PPP borrowers, $15 billion of which for businesses with 10 or fewer employees, or loans under $250 thousand in low-income areas
Second Draw PPP Borrowers:
- Maximum new loan amount is $2 million
- Eligibility for a Second Draw PPP Loan is available to PPP-1 borrowers that have:
- 300 or fewer employees, and
- has sustained a 25% drop in revenue for any 2020 quarter versus same quarter in 2019, and
- has used 100% of the initial PPP loan on eligible expenses
- Lender fee structure same as for new borrowers (see above)
- Entities that have permanently closed are prohibited from participating in a Second Draw PPP Loan
- Establishes a $25 billion set-aside for businesses with 10 or fewer employees, or loans under $250 thousand in low-income areas
- The law creates a new simplified loan forgiveness form for loans under $150,000
- All borrowers can now select a covered period from 8 to 24 weeks, at which time the loan would be forgiven if the required portion of the proceeds are used for eligible expenses
- The types of expenses that qualify for forgiveness have been increased to include new categories.
Other key highlights of the new law
CARES Act SBA Debt Relief for Loans Extended. The law provides $3.5 billion for the SBA to resume making monthly P&I payments on certain new and existing 7(a), 504 and microloans for three months beginning in February 2021. An additional five months of payment relief will be available for certain types of borrowers that were impacted the most by the ongoing shut-down.
Temporary Changes to Other SBA Programs. The new law waives SBA borrower and lender fees for 7(a) and 504 loans. It also increases the 7(a) loan guarantee to 90% of the loan amount through October 21, 2021, at which time the guarantee falls to 85% for loans under $150,000 and 75% for all other.
“Hold Harmless” provision Expanded. The “hold harmless” provision has been expanded to include both the loan origination and the forgiveness process.
NOTE REGARDING RELEASED PPP LOAN INFORMATION:
The Small Business Administration and Treasury Department publicly released information about Paycheck Protection Program loans. Please click here for details.
Banks are still waiting on specific forms and procedural guidance from the SBA and US Department of Treasury. Requirements may change as banks receive additional guidance from the government. The SBA will continue to clarify and provide additional guidance regarding Paycheck Protection Program (PPP). Legends Bank will email and update our website as pertinent information is released.