After passing a $2 Trillion package in March, on April 21, 2020, the Senate unanimously passed another bill (the Paycheck Protection Program and Health Care Enhancement Act) which provides almost $500 Billion in new funding for COVID-19 related relief.
The vast majority of the money appropriated in the bill will go to small businesses hit so hard by the coronavirus pandemic, while the remainder was earmarked for hospitals and expanded coronavirus testing. Here’s a more specific breakdown of how the nearly $500 Billion will be distributed:
- More PPP Loans. $310 Billion will provide additional funding for the Paycheck Protection Program. PPP, as it is commonly known, provides forgivable loans to small businesses who may use the money for payroll, rent and mortgage payments, utility, and other authorized expenses. All the same rules regarding PPP loans, including what is an “allowable use” and “forgivable uses” and the “covered period” will continue to apply. In this bill, $60 Billion of the new funds have been earmarked for smaller federally insured lenders (those with less than $50 Billion in assets), community banks, and credit unions. The hope is that these institutions will be able to funnel loans to very small “ma and pop” shops and main streets businesses who were largely cut off from PPP loans when the initial round of funding ran out after just 2 weeks. Businesses who have already received a PPP loan will not be allowed to apply again as the PPP Interim Final Rule allows small businesses to apply for only one PPP loan.
- Small Business Emergency Disaster Loans. An additional $60 Billion was allocated to the for Economic Injury Disaster Loan Program for small businesses. The EIDL is supposed to provide small businesses with emergency grants up to $10,000 that do not have to be paid back, as well as loans of up to $2 million based on the actual economic injury. But unlike the PPP, which is forgivable if funds are used for allowable purposes, business have to pay back an EIDL loan, minus the grant. The Interim Final Rule allows for businesses to apply for both EIDL and PPP loans. However, businesses cannot use the funds for the same purpose. The Rule notes: “If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan.” Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan The amount of an EIDL grant will end up being subtracted from the forgiveness of any PPP loan.
- Hospitals. $75 Billion will go to hospitals and health care providers to reimburse for COVID-related expenses like purchasing PPE, ventilators, and additional patient beds
- Testing. $25 Billion will fund the expansion of coronavirus testing. Most medical providers, epidemiologists and other experts working in the field of infectious medicine, believe that widespread testing is the key to safely reopening businesses to begin to restart the economy.
The full text of the bill can be found here: https://www.congress.gov/116/bills/hr266/BILLS-116hr266eas.pdf
This bill will likely become law shortly (perhaps by the end of the week), as the House is expected to pass the bill on Thursday, and the President has expressed support via Twitter.
What are the next steps for Small Businesses?
While the availability of significant new funding is good news for small businesses, they will have to act fast if they wish to get any share of the new Federal relief.
The first thing any small business who is considering applying for a PPP loan should do is contact their current lender. If your business has no existing relationship with a lender, consider contacting the Small Business Administration, who administers the PPP program, for names of lenders in your area eligible to make PPP loans. You can also go directly to the SBA site to find eligible lenders in your area: https://www.sba.gov/paycheckprotection/find
Make sure to ask the lender what information/documents will be needed to complete the application. While each lender’s requirements will vary, typically a small business will need the business’s legal name and address, as well as records of corporate formation, tax returns or other documents that show payroll, mortgage or rent documents, and potentially evidence of good standing. Small businesses may also wish to check out the SBA’s PPP Information Site.
Small businesses will also need to determine when they will need to submit an application. The short answer is quickly, if it wants to be sure to secure a loan. Given how quickly (about 2 weeks) $349 Billion in loan funds ran out the last time, small businesses are well advised to be prepared to apply as soon as the SBA announces that the funds are available for this latest round of PPP loans.
Keep in mind that some small businesses may not need to apply, if they already did earlier before the last round of funding ran out. Because the PPP Interim Final Rule allows small businesses to apply for only one PPP loan. This means that any business which already applied for a PPP loan should check with their bank about the status of the original application before applying again.
Small businesses who have not submitted a PPP loan application but wish to do so now that new funding is available, should get their application ready. Contact your bank as soon as possible to understand eligibility, processing, and what supporting information/documents will be needed for the application.
There remains a large backlog of applications for small businesses who applied for PPP loans during the first round of funding. It remains to be seen whether these loans will be processed first now that new funding is available. Many believe that they will. All the more reason that small businesses who did not apply before will need to act quickly.