Congress’ approval of another round of fiscal aid is providing a ray of hope for borrowers and customers of financial institutions as they look to move on from a difficult year.
The legislation provides needed relief for the small businesses most affected by the downturn and customers of financial institutions. It also offers a host of benefits beyond the banking industry.
The big ticket item in the legislation is the $284 billion in new funds allocated to revive the Small Business Administration’s Paycheck Protection Program.
Not only does the program allow for new, initial loans but also for the origination of second-draw PPP loans to qualifying borrowers.
Within the legislation, some important updates were made to the PPP program:
- Expenses: Increased what allowable expenses could be paid for with program funds. While the program still requires 60% of proceeds to be used for payroll expenses, it expanded what the remaining 40% of proceeds could be used for.
- Forgiveness: Simplified the forgiveness process to allow PPP loans of $150,000 or less to be forgiven through a one-page attestation.
- EIDL fix: Repealed the provision that required PPP borrowers under the CARES Act to deduct the amount of Emergency Injury Disaster Loans from their PPP forgiveness calculation.
- Agent fees: Clarified that a PPP lender—through the CARES Act or newly passed legislation—is responsible for paying agent fees to an agent the lender contracted with.
- Tax deduction: Allows businesses to deduct expenses paid for with PPP loan proceeds for tax purposes.
- Lender safe harbor: Added safe harbor language that holds PPP lenders harmless from enforcement and penalties when relying on certifications made by borrowers, and documents provided by them.
The long-awaited changes provide needed benefits to the PPP borrowers while also adding protections for the lenders.
In addition, the legislation carved out funds within the $284 billion PPP allocation for the following:
- $15 billion for loans to be issued by Community Development Financial Institutions and Minority Depository Institutions
- $15 billion for loans to be issued by insured depository institutions with assets under $10 billion
- $15 billion for initial PPP loans to entities with 10 or fewer employees as well as for initial loans of $250,000 or less to be issued in low- or moderate-income areas
- $35 billion for initial PPP loans for businesses that have not previously received a PPP loan
Lastly, the new legislation extends two accounting rules related to the deferral of CECL implementation and troubled debt restructurings under the CARES Act to Jan. 1, 2022.
Unlike the chaotic rollout of the first phase of the PPP in early April, financial institutions that helped provide the bulk of stimulus to small and medium-size businesses in the early days of the pandemic took the lessons learned and have applied those to their processes.
They now stand ready to push this aid to qualifying businesses in a more efficient and effective manner.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
