The $2.2 trillion coronavirus economic stimulus bill is providing a lifeline for small businesses in New Jersey and across the country in states that have been hit hard by the epidemic.
The cornerstone of the legislation for business owners is a bold a $349 billion lending program for companies that are currently struggling to make payroll and pay other bills. It also provides increased unemployment benefits, including payments for “gig workers” (independent workers and self-employed individuals) who normally would not qualify for unemployment checks.
The Paycheck Protection Program (PPP) of the CARES Act makes SBA loans available to businesses of 500 employees or less that have below a certain revenue level (determined by industry). The legislation sets a maximum 7(a) loan amount to $10 million through Dec. 31, 2020. Companies are able to use the money to make payroll, rent, and utility payments.
Under the CARES Act, lenders are able to make determinations on borrower eligibility and creditworthiness of small businesses without going through all of SBA’s normal channels. It also provides that same authority to lenders who join the program and make these loans. The legislation allows banks and -- hopefully non-bank FinTech, lenders that can process loans in as little as 48 hours -- to make PPP loans.
Paycheck Protection Program
- Authorizes $349 billion for the SBA’s 7(a) loan program through Dec. 31, 2020.
- Loan balances will have a maturity of not more than 10 years.
- Sets a maximum interest rate of 4%.
- Ensures borrowers are not charged any pre-payment fees.
- Increases the government guarantee of 7(a) loans to 100% through Dec. 31, 2020.
- Allows deferment of 7(a) loan payments for at least six months and not more than a year.
- Increases the maximum loan for an SBA Express loan from $350,000 to $1 million through Dec. 31, 2020, after which point the Express loan will have a maximum of $350,000.
- Ensures that the processing and disbursement of loans prioritizes small business concerns and entities in underserved areas and businesses owned and controlled by veterans, families of military members, and socially and economically disadvantaged individuals.
Borrowers may not issue dividends for up to a year after the loan is no longer outstanding and must retain 90% of employment levels as of March 24 "to the extent practicable" through September 30.
Rohit Arora is CEO of Biz2Credit and one of the country's leading experts in small business finance.