Paycheck Protection Program More questions have emerged, including whether CUs can apply to receive funds.

WASHINGTON—Details continue to emerge related to the recently announced Paycheck Protection Program, although as CUToday.info reports, even more questions have emerged, including whether CUs can apply to receive funds. 

The most recent change is an announcement by the Treasury Department that it has doubled the interest rate to 1% from 0.5% on the emergency loan program. Treasury Secretary Steve Mnuchin said the last-minute change was made in response to concerns raised by smaller financial institutions, which had complained the 0.5% rate would create “unacceptable losses for lenders," according to the Wall Street Journal. Some financial institutions have said they will not be ready today to offer the program, but Mnuchin said it will become effective anyway. 

“You will get the money. You will get it the same day,” Mnuchin said during a press conference. “You use this to pay your workers. Please bring your workers back. This is a very important program.”

The program, part of the $2-trillion CARES Act, is to be administered by the Small Business Administration and is designed to help keep people employed by making loans to small businesses to cover payroll. A credit union must be an approved SBA lender to participate. 

The program will charge the 1% interest rate, and the loans will be forgiven as long as the companies keep their employees on their payrolls for two months.

Under the program, lenders would make available as much as $350 billion in government-guaranteed loans to cover eight weeks of payroll and other expenses.

How Program Works

Business owners can begin applying Friday, followed by independent contractors and people who self-employed on April 10, according to the SBA. The government says it will forgive the loans if they keep their workforce largely intact and use the loans for eligible expenses such as rent and utilities, the agency added.

“The Trump administration is anticipating that the nation’s vast network of federally insured banks, credit union, and farm credit system institutions will handle the loans, senior administration officials said Tuesday,” the Wall Street Journal reported. “Most of the applications are likely to be filed online, they said, and the money could be dispensed in as little as one day.”

According to the SBA, the loans will be due in two years, with payments deferred for six months. Interest accrues during the deferral period. The amount of loan forgiveness is reduced if the borrowers reduce their payrolls by more than 25% during the eight-week period covered by the loan, the Journal said.

“But questions remain unanswered about exactly how the program will work, lenders say,” the Journal noted. “Unknown is how quickly the system will be able to meet the expected high demand for the new loans.”

‘Skeptics’ Doubt Feasibility

Several “skeptics,” told the Wall Street Journal they have doubts over the SBA’s ability to handle the massive increase in interest, both from a technology and manpower perspective.

One small bank in Oklahoma reported it fielded 50 applications for the loans in just one hour.

“The administration officials said that the Payroll Protection loans will be far simpler to approve than conventional SBA loans and expects to qualify many other banks and other federally insured depository institutions,” the Journal said. “The form is only two pages long and essentially only requires the borrowers to estimate their average monthly payroll, number of jobs and other expenses. Borrowers are also required to pledge that the funds will be used to retain workers and other essential bills like mortgages and leases.”

Additional Details

The Journal report added the SBA won’t have to approve the loan, the officials said. Rather the agency would simply check to make sure that the borrower hasn’t already applied and received a loan by working through another bank.

There are approximately 30-million small businesses in the United States.

CUToday.info