Coronavirus Stimulus Plan: Loans for Small Business
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What is the new federal relief program and who is it for?
Here's your Money Briefing for Tuesday, March 31st. I'm J.R. Whalen for The Wall Street Journal. All this week, we're taking a look at different pieces of the new federal stimulus plan for our series, $2 Trillion and You. Yesterday, we talked about how the relief package provides benefits for retirees and for people still contributing to their 401k. Today, we look at the nearly $350 billion in loans that are now available for small businesses.
In order to get this loan, businesses and nonprofits either keep the workers that they have or rehire workers that they laid off. The businesses have to actually certify that they're going to do that.
That's Wall Street Journal reporter Amara Omaquay.
Which businesses and workers qualify for the $350 billion small-business loans?
Coming up, she'll explain how businesses can apply for the program and what happens if they can't repay the loan.
Small businesses in the U.S. employ nearly 60 million workers. But because of the coronavirus pandemic, many have been forced to cut costs by letting go of employees or even temporarily closing. The stimulus bill that passed into law last week will provide $350 billion in loans starting this Friday to help businesses avoid closing permanently. And Wall Street Journal reporter Amara Omaquay is with us to discuss the ins and outs of the program. So, Amera, who specifically is eligible for these small business loans?
So essentially any business or nonprofit with fewer than 500 employees would be eligible. There are some exceptions to that, but that's just generally speaking. Also self-employed workers, gig workers, independent contractors would also be eligible. And the main criteria is that the business or the person needed to have been in operation or working as of February 15th, 2020. And for businesses and nonprofits, they needed to have paid employee salaries and payroll taxes.
How much can businesses borrow and how is the loan amount calculated?
How much can a business apply for?
The maximum amount a business can apply for is $10 million and the interest rate on these loans is capped at 4%. But it is important to note that 10 million is the max and lenders are going to be using a formula that looks at a business's average monthly payroll and multiplying that by two and a half times to figure out the appropriate amount that a business should get. Treasury Secretary Steven Mnuchin has emphasized that this is a program that's going to help pay payroll and essentially overhead costs. And the way he gets to that is by essentially looking at the formula that says we're going to give you a loan that is the cost of your average monthly payroll times two and a half percent. And so that two and a half times formula is what is going to be used for most businesses.
But because this program is also open to businesses that haven't necessarily been in existence that long and independent contractors, the exact rules are going to be different depending on the structure of the business or the person applying.
How do businesses apply — which lenders issue and back these loans?
And how do businesses apply for the loans?
This program is essentially a partnership between private lenders and the Small Business Administration. So private lenders will be issuing the loans and the loans will be backed by the Small Business Administration. So a business that is interested in this particular program needs to go to a private lender in order to apply. Now, currently, the Small Business Administration says There are about 1,800 lenders across the country that had existing relationships with the SBA and that can issue these loans right away.
How does the Payroll Protection Program require businesses to preserve or rehire employees?
Treasury Secretary Mnuchin says he essentially wants every FDIC-insured institution in the country and additional lenders beyond that to be able to issue these loans. And he says the Treasury Department is working quickly to put together criteria and the framework so that pretty much any lender across the country can be involved.
How specifically does the program preserve jobs at small businesses?
So lawmakers that worked on this legislation actually called it the Payroll Protection Program. So it really is geared towards the idea of making sure that businesses and nonprofits either keep the workers that they have or rehire workers that they laid off.
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Chapters
6 chapters
1
What is the new federal relief program and who is it for?
0:05–0:46
2
Which businesses and workers qualify for the $350 billion small-business loans?
0:46–2:02
3
How much can businesses borrow and how is the loan amount calculated?
2:02–3:08
4
How do businesses apply — which lenders issue and back these loans?
3:08–3:40
5
How does the Payroll Protection Program require businesses to preserve or rehire employees?
3:40–4:55
6
When will loans be forgiven and what conditions affect loan forgiveness?
4:55–6:21
Speakers
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