SBA Gears Up to Administer Massive Loan Program to Steady Small Businesses

This blog post was originally featured on IEDC's blog ED Now. IEDC will host a webinar on the CARES Act on Friday, April 3. 

Nearly $350 billion in loan guarantees for small businesses disrupted by the Covid-19 pandemic could be available as soon as April 2, Treasury Secretary Steven Mnuchin said today.

The Paycheck Protection Program, intended to help enterprises with 500 or fewer employees keep their workers on payroll, is one of the key components of the $2 trillion economic relief measure President Trump signed into law March 27. The loans will be distributed under the existing framework of the Small Business Administration’s 7(a) program, a partnership between private lenders which issue the loans and the federal government.

The new program raises the maximum amount of a 7(a) loan from $5 million to $10 million. The maximum interest rate for the loans is set at 4 percent, and independent contractors, sole proprietors, the self-employed and certain nonprofits are eligible. If all employees are kept on payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest or utilities; up to 100 percent of the loan is forgivable.

“For all intents and purposes, this is a grant program and [lawmakers] want the funds to be used to pay payroll,” Tony Wilkinson, chief executive of the National Association of Government Guaranteed Lenders, told the Wall Street Journal. “The main goal here is to help small businesses keep their staff employed,” he said.

The program marks a substantial jump in the SBA’s reliance on the 7(a) program, raising questions about the agency’s capacity to administer it, according to the Journal. SBA now guarantees about $25 billion in 7(a) loans to small businesses; the additional $350 billion in lending authority would be on top of that.

The primary challenge for lenders will be adjusting to new standards for issuing the loans and the law’s provision allowing for loan forgiveness, according to John Arensmeyer, CEO of Small Business Majority.

On March 25, Mnuchin said the Treasury plans to issue new regulations permitting almost all FDIC-insured banks to make the SBA loans.

SBA most likely will issue guidelines on underwriting and application requirements to significantly speed up the timeline for processing loans under the 7(a) program, Wilkinson said. The process typically takes at least a month. “I think we, the lending industry, and they, the SBA, understand there is a need for speed here, and I anticipate this will be a very streamlined process based on what is in the legislation,” he said.

For more details on the Paycheck Protection Program and other SBA assistance for businesses affected by the pandemic, visit the agency’s website.

For SBA, the CARES Act also included $10 billion for emergency economic injury disaster loan grants, $17 billion for loan subsidies, $100 billion for secondary market guarantee sales and $240 million for small business development centers and women’s business centers for technical assistance for businesses. The Economic Development Administration received $1.5 billion in supplemental funding, directed to the economic adjustment assistance account. The Community Development Block Grant program was allotted $5 billion in supplemental funding.

A detailed breakdown of what agencies and programs received funding under the stimulus bill is available on the IEDC website.