With most of the initial funding appropriated for COVID-19 relief rapidly depleted, Congress increased funding on April 23, 2020 for two advantageous SBA loan programs. The additional funding was authorized in the Paycheck Protection Program and Healthcare Enhancement Act (PPP Enhancement Act) (H.R. 266) and signed into law by President Trump on April 24, 2020.
The PPP Enhancement Act is a $484 billion relief package that appropriates additional federal funds to address the COVID-19 crisis, as follows:
- Appropriates an additional $310 billion for the PPP loan program, bringing the total funding of the PPP loan program to $659 billion;
- $60 billion carve out of PPP loan funds for smaller lending institutions
- $30 billion for lending institutions and credit unions with capitalization of at least $10 billion but no larger than $50 billion
- $30 billion for smaller credit unions and community development lenders
- Appropriates an additional $50 billion for the SBA’s Economic Injury Disaster Loan (EIDL) loan program
- Appropriates an additional $10 billion for the SBA’s EIDL emergency grant program
- Appropriates an additional $100 billion to the ‘Public Health and Social Services Emergency Fund’’ for healthcare related expenditures
- Additional funding of federal salaries related to the foregoing programs
- $60 billion carve out of PPP loan funds for smaller lending institutions
PPP Loan Program
Effective Monday April 27, 2020, the SBA resumes funding small business loans under the Paycheck Protection Program (PPP) with an additional $310 billion injection. This second round of PPP loan funding comes just four weeks after the PPP loan program was established in the $2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES Act) enacted on March 27, 2020. In its PPP Loan Report published on April 16, 2020, the SBA reported over 1.6 million PPP Loans had been applied for with an average overall loan size of $206,000.
Our prior summary of the PPP loan program is found here.
Since passage of the CARES Act, the initial $349 billion in PPP loan program funding was quickly depleted, with some controversy surrounding the program and its administration. Some critics questioned the “first come, first served” implementation of the PPP loan program by eligible lenders, the timeliness of loan funding, and the receipt of PPP funds by larger public companies. In its efforts to address some of these concerns, the Treasury Department issued supplemental guidance for the PPP Program on April 23, 2020 and again on April 26, 2020. The guidance further restricts borrower eligibility criteria for the PPP loan program. The Treasury Department specifically appeared to tackle the criticism head on by stating “ . . . it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith…”
EIDL Loan Program
The PPP Enhancement Act also infuses an additional $60 billion into the SBA’s Economic Injury Disaster Loan (EIDL) loan program. As with the PPP loan program, significant demand for EIDL loans in the wake of the CARES Act resulted in a lapse in appropriations for the EIDL program.
Unlike the PPP loan program, the EIDL program is directly administered by the SBA and not through approved lenders. As of April 24, 2020, the SBA reported nearly $8 billion in approved EIDL loans in response to the COVID-19 crisis.
EIDL loans offer very different features and terms from PPP loans. EIDL loans are capped at a maximum of $2 million, carry a higher interest rate, and may require a personal guaranty over certain loan amounts. While PPP loans offer the potential for complete loan forgiveness, only $10,000 of the EIDL loan (an Emergency EIDL grant or loan advance) may be forgiven.
The business lending attorneys at Weiss Serota Helfman Cole & Bierman stand ready to assist clients in evaluating their business lending needs. We can advise you in gathering due diligence, completing applications, and engaging with SBA Preferred Lenders and the SBA to process your applications as soon as possible.
