Millions of small businesses are expected to apply for a desperately needed rescue loan Friday, a stern test for a banking industry that has had less than a week to prepare for the deluge. The $349 billion Paycheck Protection Program is aimed at helping small businesses retain workers and pay bills during the coronavirus pandemic.
The program is being here, and involves a five-page process for which lots of patience is advised.but banks are the ones who handle the application process. The Small Business Administration's "streamlined" verification process starts
The banking industry is trying to temper expectations about how many businesses will get the cash they need on Friday. Banks large and small will have to process these loans as quickly as possible in order to get their customers a slice of the program.
The new program, funded by both private lenders and the U.S. Treasury, runs through June 30. Loan payments will be deferred at least six months, include a 10-year term with interest capped at 4%. Companies that maintain employees on their payrolls for eight weeks will receive loan forgiveness for the portion of the loan used for payroll, rent, mortgage interest or utilities, the SBA says.
The banks have moved employees into new departments — a logistical challenge given many employees are working remotely — just to potentially keep up with the flood of applications. Not only that, but thousands of their employees are either sick or quarantined because of the virus. At the same time, any business with 500 or fewer employees that was running as of Feb. 15 and has been negatively impacted by COVID-19— a number that could count in the millions, given there are roughly 31 million small business in the U.S.
Already, one large lender to small businesses says it likely won't be ready. On Thursday, JPMorgan Chase said it was still awaiting instructions from the SBA and the Treasury and, as a result, "will most likely not be able to start accepting applications on Friday."
Others scrambled to get prepared.
"Wells Fargo is working as quickly as possible to be ready to assist small business customers as part of the Paycheck Protection Program," said Catherine Pulley, a spokeswoman for Wells Fargo, one of the largest small business lenders.
$2 trillion relief package
The program is part of the $2 trillion relief package signed into law last week, which was billed as a way to help local businesses that often form the fabric of communities stay afloat. The program will give businesses low-interest loans of about 2.5 times their average monthly payroll. The loans will be fully or partially forgiven if businesses show that the money was used to retain or rehire employees and pay some overhead expenses through June 30.
While Congress could approve more money later on, the program as it stands is expected to run out quickly. That could mean applicants who have the financial and legal expertise of a larger organization might be able to maximize their benefits, not leaving much for smaller businesses, especially those who wait or have problems applying.
Congress made the program as wide as possible. An expansive definition of "small business" in the law means that it will be open to much more than just Main Street shops when lenders start processing applications Friday. Bankers recommend applying for the loans through the bank they already have accounts with to speed along the process as quickly as possible.
Operators of name-brand hotel, restaurant and service chains and franchises with thousands of employees at locations scattered across the U.S. are eligible. Lobbyists are pushing the Small Business Administration to interpret the law generously to help sectors devastated by mandatory business closures and stay-at-home orders, possibly making the aid available to international fast food and lodging giants and allowing individual owners to get around a $10 million cap on loans.
Independent contractors and the self-employed could be especially hurt since they will not be eligible to apply until April 10 under guidance from the Treasury Department. By then, banks could be overwhelmed with applications.
"It's hard for me to say this: There is only $350 billion in this fund. Every big restaurant and hotel chain is going to be going after this money. It's not going to last," said Ron Feldman, chief development officer at ApplePie Capital, which has been helping businesses get ready to apply.
"If you want to get this loan, speed is your friend," Feldman told 2,000 franchise industry officials on a conference call this week.