Small-Business Relief Loans May See Longer Rollout

April 2, 2020

While the Small Business Administration is preparing to roll out its $350 billion relief package on Friday in the form of forgivable loans, lenders are still seeking guidance on how to proceed.

The SBA is relying on a public-private mobilization effort to distribute the Paycheck Protection Program funds for small-business owners, independently owned franchisees, sole proprietors, independent contractors, and self-employed individuals who are struggling to pay their bills due to the shutdown orders aimed at curbing the spread of the coronavirus.

There has been some confusion, particularly on the lender side, over what documentation they’re supposed to be collecting from borrowers. During a media briefing Thursday morning, Chris Hurn, CEO and founder of Fountainhead, the largest SBA lender in Florida, voiced significant concerns about the launch of the PPP program tomorrow because they don’t know what they’ll need to do to verify payroll or whether they’ll need to pull a full credit report, or whether a LexisNexis search will be needed to find out if the borrower has any tax liens or child support judgments against them. It’s also unclear whether business owners must include independent contractors in their payroll calculations.

Also, with a 0.5% interest rate, Hurn says lenders will need a way to sell the loans but there’s no mechanism to do that yet. The federal government is the only entity that could buy them at such a low rate, he says, yet they haven’t signaled how or when that might take place.

“At this point in time, [borrowers] have to be patient until we have the guidance from the SBA,” Hurn says.

Guidance is also critical for lenders to build out their internal systems and know how many people they need to hire or divert to process the loans.

“The government has to step up and address these remaining questions so that the people who will be on the front lines making these loans can help small businesses,” Hurn says.

Hurd is expecting a “mad rush” of small-business owners “clamoring for the funds.” His company is already accepting preliminary applications, which are being held in a cue. “There’s a real likelihood that more funds will be needed in the next 60 to 90 days,” he says.

Borrowers will, at minimum, be required to supply their driver’s license, Social Security number, or Employer Identification Number. Small-business owners should reach out to their SBA lenders now to ask questions about what they'll need to provide when they apply. They should also be prepared to keep in touch with their lenders during the application process because they may be asked to supply additional documentation. The National Association of REALTORS® also offers information on SBA loans under the CARES Act FAQs.

Small-business owners who employ 500 employees or fewer can qualify. The amount any small business is eligible to borrow is 250% of its average monthly payroll expenses (with individual salaries capped at $100,000 per year), up to a total of $10 million. The amount of the loan is intended to cover eight weeks of payroll expenses and any additional amounts for making payments towards debt obligations. The eight-week period may be applied to any time frame between Feb. 15 and June 30 of this year.

The goal of the program is to help business owners retain their employees at their current base pay. If all employees are retained and the business maintains at least 75% of their average salary levels during the 8 weeks, the entirety of the loan will be forgiven. If any employees are laid off or salary levels go below 75%, the forgiveness will be reduced by the percent decrease in the number of employees.