LAS VEGAS – Of all the measures the U.S. government is taking to help American workers and businesses deal with the economic crisis caused by the coronavirus pandemic, one of the most widely publicized is the Paycheck Protection Program (PPP). It offers loans designed to provide a direct incentive for small businesses to keep their workers on the payroll.
To help Nevadans better understand this issue, Nevada Bankers Association President and CEO Phyllis Gurgevich answered the most frequently asked questions about the PPP and related issues:
How are banks helping?
Since day one of the COVID-19 pandemic, and before the federal government offered any aid, our member banks have been working tirelessly to assist distressed customers and businesses. Those substantial efforts include deferring principal and interest on business loans, offering forbearance on home mortgages, waiving fees and even investing in operational and safety changes so that banks could remain open to serve their customers’ needs. Nevada’s banks have stepped up, and they will continue to do their part. Nevada’s banks have also taken on glitchy systems, incomplete guidance and changing forms and rules to participate in the SBA Paycheck Protection Program. Difficulties were not necessarily unexpected. Still, the program is set to place $349 billion directly into the hands of small businesses in record time through a system that didn’t exist two weeks ago.
What is the Paycheck Protection Program?
The U.S. Small Business Administration’s Paycheck Protection Program is an unprecedented government initiative to provide financial assistance to the small business community in response to the coronavirus pandemic. America’s banks are actively participating in the program so they can help their small business customers and help put the economy on the path to recovery.
How does the PPP work?
Businesses should start the process with a lender that knows them, since this will shorten the application time. If your lender has reached its maximum loan amount, there are many other banks, credit unions and lenders participating. The SBA accepts borrower applications from lenders through an online portal. Once a loan is approved, the lender floats the loan to the borrower. If the borrower abides by certain SBA rules for the next eight weeks, the borrower can apply to have up to 100% of the loan forgiven by the SBA. The SBA then provides the bank with the amount of the loan that is forgiven, and the remainder, if any, is converted to a two-year loan at 1% interest.
What lenders are participating?
Nearly every bank in Nevada, regardless of size, is participating in the program. At program launch, the SBA had 1,700 approved lenders nationwide. Recognizing that the sheer volume would require many more lenders, additional banks, credit unions and non-depository lenders have been approved to help manage the volume. As of today, more than 4,600 approved lenders are participating nationwide, providing 1,035,086 loans totaling $247,543,393,521.
I’ve heard the funding is running out. What can I do?
We understand that the initial funding for the Paycheck Protection Program is likely to be replenished, at least once. Before businesses apply, they should consider that the eight weeks to fulfill payroll obligations begins at the time the loan is funded. The SBA has requested for loans to fund within 10 days. If your business will not be ready to have employees on payroll, the loan may not be forgiven. The timing on being able to fulfill the actions required for forgiveness will be important for each business to contemplate.
Are small businesses getting help?
Banks are stepping up to help small businesses in Nevada in numerous ways. Their efforts include temporary lines of credit, payments deferrals, waived fees and the SBA Paycheck Protection Program. In the first seven business days of the program, more than 4,200 loans were approved for Nevada businesses, totaling more than $1,255,172,600. From the data we are receiving from our NBA members, we estimate about half of those have already been funded.
Why is this process taking longer than people thought?
The size and scope of this program is far larger than SBA has ever handled before. SBA lending last year totaled $28 billion. SBA is processing loans for that amount in a single day right now. It’s understandable that this could take some time to get up and running. It’s also important to remember that this unprecedented program is being launched at a time when banks are also having to account for COVID-19 and the safety of their own employees. These are not normal times, and these are not normal loans.
What information will a bank need from a customer?
Banks will need to collect payroll information. Although some of the verification process for payroll and other expenses has been streamlined, banks expect small businesses to come to them in good faith. Banks are still subject to Bank Secrecy Act requirements, but Treasury has declared that if the company seeking a loan is an existing customer of the bank and the bank has already identified and verified the identity of the beneficial owners of the company, then it can rely on the information it already has on file. Moreover, if the beneficial ownership information is incomplete for an existing customer, the bank will not be required to complete and verify it, although the bank will make that determination after a risk-based assessment. These changes should help streamline the approval process for many loan applications.
For more information on the Paycheck Protection Program, visit https://www.sba.gov/funding-programs/loans/coronavirus-relief-options.