The United States has been impatiently waiting for the government to pass a 880-page bill that would approve a $2 trillion stimulus package to aid the country in the midst of the destructive coronavirus pandemic. As a result of the widespread virus, unemployment applications have risen exponentially in the past few weeks due to closures and small businesses are struggling to pay employees and stay up and running. A large portion of the stimulus package is supposed to go towards helping these businesses, but they may have to wait to get their money.
The bill provides about $377 billion to small businesses and banks will be allowed to provide loans backed by the Small Business Administration (SBA) straight to businesses. This program, termed the Paycheck Protection Program, will be overseen by the SBA and will cover businesses with up to 500 employees. Of course, there will be some strict terms and conditions, but overall it is meant to make things easier while small businesses are trying to recover from the global pandemic.
The SBA is offering loans that would cover basic expenses such as payroll for employees, rent, and utilities. Businesses would not be expected to pay these back in full, as the Treasury Department will be funding this program and paying banks back. If a business has recently let some employees go, it would be ordered to pay more money back. Also, under the program, loans for annual salaries higher than $100,000 will not be forgiven.
To speed up the origination process, businesses are being offered up to $10 million at an interest rate of 4% depending on how much money was paid to employees between the first of the year and February 29th. In general, if the terms are carried out properly, businesses will only be required to pay the interest and the rest of the loans will be forgiven.
Businesses that can prove they incurred at least a 50% loss compared to past years are going to be offered a tax credit if they keep their workers employed during the pandemic. Small businesses that take this tax credit will get refunded for 50% of the wages they pay up to $5,000 for every employee. The catch to this option, however, is that businesses that take this credit will not be eligible for various other SBA loans.
The bill also loosens rules regarding net operating loss-reduction, which will give businesses more opportunities to offset. Individual lenders are allowed to use their own paperwork to facilitate the loans and the SBA-backed loans do not have fees and will not require businesses to give up any sort of collateral. Small businesses that use an FDIC-insured bank are able to get the money immediately.
Of course, it is excellent that the bill has provisions directly aimed at helping small businesses; however, it seems as if the financial assistance will not come as soon as many businesses need it.
The Senate passed the bill Wednesday night, with Senate Majority Leader Mitch McConnell stating that “this is a wartime level of investment into our nation.” The bill is expected to pass in the House at the end of the week, but financial aid likely wouldn’t be received by small businesses for at least two or three weeks. For many businesses that work with narrow profit margins, this may not be sufficient and could force many closings across the country.
Small businesses looking to take advantage of these loans can apply right now on the SBA’s Disaster Loan Assistant website. According to the website, The SBA’s loan program “provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.” Owners must provide various pieces of information such as tax returns, Personal Financial Statements, Tax Information Authorization forms, balance sheets, and more.
Unfortunately, the SBA’s website has been giving users errors due to the overload of people applying for aid, and many business owners who were able to get through to the website were notified it will take a minimum of three weeks to process them.
Despite the uncertainty and questionable outlook for many small businesses, the White House is projecting optimism in the wake of this crisis. In the coronavirus task force meeting on Thursday, when specifically asked about restaurants that may have to close as a result of the pandemic, President Trump responded with “they’ll all be back.”
Treasury Secretary Steven Mnuchin provided more hope, announcing that the government will “operate at lightning speed” once the bill passes.