Rollout of Payroll Protection Program Brings Confusion

Lack of details about the new federal-backed loan program for distressed businesses raises concerns.  

April 03, 2020

WASHINGTON—Opening day for the Paycheck Protection Program has many borrowers and lenders fearful the system cannot handle the wave of activity anticipated. As many businesses have seen traffic slow dramatically or even altogether, the idea that $349 billion could flow into the economy as early as today brings some comfort and relief. Unfortunately, the lack of details about the program’s operation has made that comfort and relief turn to confusion and concern.

The Paycheck Protection Program was established through the CARES Act. The program is intended to provide government-backed, low-interest, forgivable loans to cover payroll for businesses with fewer than 500 employees, some businesses that operate as franchises, or businesses qualifying as restaurants or hotels with fewer than 500 employees at each site. Those loans will be provided by local lenders, registered with the Small Business Administration (SBA), and then ultimately backed by the U.S. Treasury. The government has committed to repay lenders for the forgiven portions of the loans.

In the week since the bill was enacted, the Treasury has provided a two-page borrower form that requests minimal information from the distressed business. The lender is then expected to verify payroll, verify that the business has been negatively impacted by the virus and then register the loan with SBA to ensure the borrower is not double dipping. With very limited guidance offered to lenders, however, some banks are threatening not to participate due to the financial and legal risk associated with the limited information and expected onslaught of requests.

Adding to the concern is the limited capacity of the workforces at the community banks and the SBA. Banks are expecting to see loan requests that outpace years of lending activity in a single day. On top of the sheer volume, bank employees are working remotely and facing the same health concerns as the rest of the country. Additionally, the SBA—an administration not lauded for efficiency and smooth operations—is likely to see millions of loan registrations in the initial few days of the program. The 3,300-employee organization, also new to teleworking, will rely on its outdated technology platform, ETRAN, to intake the registrations. Many now fear that system’s questionable ability to handle the wave of activity will make the crash of healthcare.gov look like a walk in the park.

With the release of the application for SBA loans on March 31, NACS legal counsel, Steptoe & Johnson, has prepared answers to commonly asked questions about the Paycheck Protection Program to the extent information is available. In addition, NACS has hosted webinars walking business through the loan programs. These resources can be found here.

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