Congress is sending $350 billion to small businesses, through the Paycheck Protection Program (PPP), all part of the unprecedented $2 trillion stimulus package called the CARES Act, signed by President Donald Trump last week.
How will it work?
The small-business loans — up to $10 million each, all for companies with 500 or fewer workers — will be made through participating banks and large credit unions. They are “forgivable” — meaning that owners get to keep the money if they use it to keep paychecks going to people earning up to $100,000 a year, or for monthly rent (or mortgage) and utilities. If the money is used for anything else, the borrower has 10 years to repay, at 4%, according to the CARES Act, with a government guarantee protecting the bank from loss. (U.S. Treasury guidelines posted Tuesday night set the rate at 0.5% if paid within two years.)
It’s a bold effort to keep Americans working as small businesses stagger under coronavirus shutdown orders. There are nearly six million U.S. small businesses with one to 500 workers. Together, they employ 60 million people, almost half the private-sector workforce.
The idea is to convince owners to avoid layoffs and remain prepared to reopen as soon as the lockdown is lift.
“Genuine help is on the way,” Guy Ciarrocchi, president of the Chester County Chamber of Business & Industry, told more than 1,000 members in a conference call last Thursday, as Congress ironed out the last details of the CARES bill. “If you can keep your business afloat a few more days, keep your employees on the payroll, there is light at the end of the tunnel," he said later.
How soon will the money arrive?
It will take “a week or two" to get the PPP loans flowing, said Chris Maher president of New Jersey-based OceanFirst Bank.
He noted that the government has also injected $10 billion more into the federal Small Business Administration’ emergency loan program, making the loans easier to get. Those loans are ready at participating banks now. But they aren’t intended to be forgiven. “Don’t just grab a program,” he said. Borrowing from SBA too soon might make a customer ineligible for state programs and other alternatives.
“We’ve been on the phone with SBA — they’ve been great — but it’s still not 100 percent clear,” how soon the money will arrive, said Rodger Levenson chief executive of WSFS, the largest bank based in the Philadelphia area. “It will take a little time to come up with a process to handle this unprecedented volume of loans.”
Since banks are ready to lend and businesses have been banking more cash that they can use to reopen, Maher says, he expects coronavirus will be more like a terrible Shore hurricane, sharp and deadly, but leading to a faster recovery than a 2008-style Great Recession.
How long will the money last?
The Payroll Protection loans are designed to stretch for the next three months. “That will get us through June,” Ciarrocchi said. “By then, either we’ll have returned to normalcy, or we’ll all be in a much deeper hole. This is about cash flow, liquidity, help us all to tread water.”
Ciarrocchi said businesses that expect to fall behind on payments are being urged to call their “landlords, banks and credit card companies” and ask for extensions — which he says are often being granted.
How do you apply?
Showing up unannounced at a bank is not a good strategy.
As reported cases proliferated in Montgomery County, WSFS has shut its 91 branches to most visitors while keeping 72 drive-up windows open.
Lots of people are seeking help. Restaurants, hotels and other businesses have made “unprecedented" requests for loan payment relief, noted WSFS’s Levenson.
PPP loans, targeted to enterprises with as many as 500 people, are designed “to give them enough to pay their people, and keep operations going.”
“If we can get some cash out so workers can live their lives and get food on the table, and small-business owners can get relief on those payments, that will go a long way to get relief on those payments," Levenson said. “And if we can get some cash [to workers] to live their lives and put food on the table, that will go a long way to getting us on the other side of this thing.”
How are lenders responding to the pain out there?
“We’re doing the things you would expect: payment deferrals, listening to members, making sure they are comfortable with their obligations," said Anthony Silvi, chief lending officer at Ardent Credit Union, who weathered the banking crises of the late 1980s and 2000s.
He is training lenders to do workouts on delinquent loans, and hoping that 60- to 90-day grace periods will be long enough to prevent default. “A lot of members have just lost their incomes. They have been told they are ‘nonessential.’ They aren’t emotional, they are trying to take this in stride, they are optimistic they can move forward.
“We are looking at more than a couple weeks to get them through a rough patch. We have a financial counseling service to talk about budgeting, how to stretch a dollar. We have a lot of real estate loans on the books, a lot of car loans, the biggest payments people have. They are concerned we’ll take their car. But we will work with you.”
What will the economy look like at the other end of this pandemic?
The CARES Act is giving the U.S. government a bigger role in the U.S. economy — which, economists at IHS Market in Boston and Philadelphia predict, could shrink a scary 5 percent-plus this year.
“The nation will come out of the Covid-19 period owing far more,” warned Richard X. Bove, a longtime bank analyst at Odeon Capital Group in New York.
He said analysts worry that the cost of recovery will cause price inflation. Prices tend to rise when the government prints more money without companies making more goods and services to buy it with.
Given the shortages in everything from surgical-mask fabric to drugs to rubbing alcohol, Bove also expects that the Trump administration will double down on its anti-trade policies, raising consumer costs in an effort to reenergize U.S. manufacturing.
And that could translate to more investment and jobs in the U.S., said OceanFirst’s Maher. He noted that Johnson & Johnson said Monday that it is accepting up to $1 billion in federal funds to develop a coronavirus vaccine — with a stipulation that the proposed $450 million vaccine production factory be built in the U.S. Maher hopes that it’s in New Jersey or Pennsylvania: “That’s where our customers are.”
Where can I go for help?
Application for the PPP program, which can be filed by banks that make SBA loans (be careful who you are giving private information to) can be downloaded at the U.S. Treasury website at https://home.treasury.gov/system/files/136/Borrower%20Paycheck%20Protection%20Program%20Application%20%28v1%29.pdf
More on CARES Act programs: https://home.treasury.gov/cares