Business side info for small businesses from current legislation

[cr8zyncalif]

I just sat through two webinars and spoke with our bank rep. We are a small business (under 500 employees). It is my understanding that this program also applies to those of you who are sole proprietorships. Bottom line is that the Feds want to avoid layoffs for 8 weeks. Various details, but the over-simplified essence is that an SBA 7a loan will be made up front; then at some point in June, the 8 weeks of payroll that followed a business's receipt of the loan will be forgiven. If the up front money was greater than the 8 weeks of payroll, then the difference will be owed. It can be immediately repaid, or it can be stretched over several years. If the up front money did not fully cover the qualified 8 weeks of payroll, then there is nothing to repay. It is all forgiven. Again, lots of details. One feature is that credit worthiness is waived and there is no provision (unlike most SBA loans) that you had to try to get a loan elsewhere before going to SBA. Sounds like every larger bank will be involved as the conduit for distributing the money to their business customers. A quick summary of this SBA 7a program based on what I understand at this point in a 900 page bill that is still being digested:

• Max number of employees is 500.
• Max loan is 10 weeks of payroll, up to $10 Million.
• Max forgiveness is 8 weeks of payroll, subject to those employees still being employed or rehired by June 30th (you can’t just rehire them on June 30th either).
• Payroll is salary only, not including payroll taxes, and tops out at $100,000 per employee.
• Other expenses (rent, utilities) may increase loan amount, still to be determined.
• Loan fees to be determined, but 3% maximum loan fee on initial loan proceeds.
• No personal guarantees.
• After borrower demonstrates that they have retained or rehired staff and loan amount is waived, remaining loan (as low as 20% of original amount) can be amortized for up to 10 years at 4%. How loan amount is waived, if there is a specific date or over time, etc. to be determined.
• Proceeds can be used for anything business related once funded.
• All of this is subject to clarification by the SBA.

If you’re interested in this loan program, the first thing my bank rep said to do is determine if you have less than 500 employees, how much weekly payroll is for the company, deduct amounts above $100,000 annually, and multiply by 10. This should more or less be your max loan amount. Collect information to demonstrate payroll. All banks are awaiting the SBA application guidelines and your bank can share that information once they receive it.

I believe that the 10 week payroll amount is actually calculated based on 2.5 months rather than 10 weeks, but that is a detail. I think it is based on your total 2019 payroll divided by 12, then multiplied by 2.5. I think I heard that in one of the webinars. Frankly, it is a blur.

 

[Observer11]

Federal, not state administered, correct?

 

[dgibbons]

I just sat through two webinars and spoke with our bank rep. We are a small business (under 500 employees). It is my understanding that this program also applies to those of you who are sole proprietorships. Bottom line is that the Feds want to avoid layoffs for 8 weeks. Various details, but the over-simplified essence is that an SBA 7a loan will be made up front; then at some point in June, the 8 weeks of payroll that followed a business's receipt of the loan will be forgiven. If the up front money was greater than the 8 weeks of payroll, then the difference will be owed. It can be immediately repaid, or it can be stretched over several years. If the up front money did not fully cover the qualified 8 weeks of payroll, then there is nothing to repay. It is all forgiven. Again, lots of details. One feature is that credit worthiness is waived and there is no provision (unlike most SBA loans) that you had to try to get a loan elsewhere before going to SBA. Sounds like every larger bank will be involved as the conduit for distributing the money to their business customers. A quick summary of this SBA 7a program based on what I understand at this point in a 900 page bill that is still being digested:

• Max number of employees is 500.
• Max loan is 10 weeks of payroll, up to $10 Million.
• Max forgiveness is 8 weeks of payroll, subject to those employees still being employed or rehired by June 30th (you can’t just rehire them on June 30th either).
• Payroll is salary only, not including payroll taxes, and tops out at $100,000 per employee.
• Other expenses (rent, utilities) may increase loan amount, still to be determined.
• Loan fees to be determined, but 3% maximum loan fee on initial loan proceeds.
• No personal guarantees.
• After borrower demonstrates that they have retained or rehired staff and loan amount is waived, remaining loan (as low as 20% of original amount) can be amortized for up to 10 years at 4%. How loan amount is waived, if there is a specific date or over time, etc. to be determined.
• Proceeds can be used for anything business related once funded.
• All of this is subject to clarification by the SBA.

If you’re interested in this loan program, the first thing my bank rep said to do is determine if you have less than 500 employees, how much weekly payroll is for the company, deduct amounts above $100,000 annually, and multiply by 10. This should more or less be your max loan amount. Collect information to demonstrate payroll. All banks are awaiting the SBA application guidelines and your bank can share that information once they receive it.

I believe that the 10 week payroll amount is actually calculated based on 2.5 months rather than 10 weeks, but that is a detail. I think it is based on your total 2019 payroll divided by 12, then multiplied by 2.5. I think I heard that in one of the webinars. Frankly, it is a blur.

I believe you have to keep 90% of your employees too for the loan to be forgiven. I have not been able to track this down, but I assume that any forgiven loan will NOT result in taxable income.

 

[Ffffws]

Are sole proprietorship (no employees) qualified?

 

[dgibbons]

Are sole proprietorship (no employees) qualified?

Believe so. You can have employees as a sole pro. It's just a bad idea due to personal liability.

Example- Husband and wife operate a food truck. They employ a couple of nieces or nephews.

 

[AlwaysSpokanesFault]

Solid info in this thread. Thanks for posting it!

 

[AlwaysSpokanesFault]

Also, as an FYI, the SBA website has been slammed for a week now. I noticed on Wednesday that it was down for maintenance and when it came back up that evening, the application process changed. Before, you have to fill fields as you go and upload supporting docs; now, you must print out physical forms, complete them and upload those (along with the supporting docs). It's going to be a painful process (but I'm thankful).

 

[NMBRCRNCHR]

What I'm not quite getting is who is driving the application process. The SBA or the bank of origination?

 

[dgibbons]

What I'm not quite getting is who is driving the application process. The SBA or the bank of origination?

Banks. SBA and Treasury are writing the regs, developing the documentation, etc. right now.

This is a pretty good summary. https://www.venable.com/insights/publications/2020/03/the-cares-act-what-you-need-to-know-about

 

[cr8zyncalif]

I'm finally back in front of a keyboard. I hate more than a sentence or two on a smart phone. My understanding of what you've discussed:

Yes, sole proprietorships are covered (Biggs?). In that case it is just 2.5 months of your income up to $100k/yr last year.

The beauty of this...I wrote a requirement list for our national contractors association with this as the number 1 item, and they seem to have lobbied accordingly, is that it comes through your bank. Already locked and loaded, they just need your SBA paperwork (no fiddling with a website, like phase 1 of these bills, which is why the SBA website is slammed). They will guide you through it. Your bank rep is the guy/girl you need.

Yes, there are some requirements about continuing to employ folks. Not sure if 90% is the number. But that appears to be mostly taken care of by the terms...you only get the 8 weeks fully forgiven for the expenses you incur. If you lay off someone, or cut hours, or cut pay rate, you simply claim less at the end. There is zero (0) incentive to lay anyone off, because you get reimbursed for what you spent on payroll, so why spend less? Key point is that guys already laid off (79 Coug, this is you) after Feb 15 (I think that is the date) can be retroactively brought back on and paid for the 8 week period. At no cost to the employer, because they will recoup the payment.

Now, I have to admit that I am not clear on whether this is the raw payroll number, or whether it includes all the fringes, fees and taxes. I think it is the latter, but I am not 100% on that; it has been moving too fast.

Yes, this is strictly federal.

The US Chamber of Commerce is one of the websites we watched. The Wazzuwatch site won't accept this link; not sure why; but here is the cut and paste. It should work, but if not, you should be able to find it from here. I have faith in you. It was today's webinar.

https://www.uschamber.com/co/events/national-small-business-town-hall-inc-us-chamber

Knowledge is power.

And of course, Go Cougs!
https://www.uschamber.com/co/events/national-small-business-town-hall-inc-us-chamber

 

[COUGinNCW]

Thanks for the info Crazy! My wife's small buz is hurting right now and this will be a godsend.

 

[NMBRCRNCHR]

A sample application form for the Payroll Protection Program is up on the SBA's website and banks will start taking apps on Friday, April 3rd, good luck everyone.

https://www.sba.gov/document/sba-form--paycheck-protection-program-ppp-sample-application-form

 

[cr8zyncalif]

It appears that in addition to the 8 weeks of payroll, you can include rent and a number of other fixed overhead items. Should be able to add it up so that very little of your up front loan is not completely forgiven, unless you have cut staff or compensation significantly from your 2019 average.

 

[dgibbons]

Remember to be patient. The banks don’t even have the money on hand yet.

It’s probably a good idea to open a separate account for the loan proceeds. Documenting the use of the funds is the key for forgiveness. A separate account will segregate the funds and should make the documentation easier.

 

[95coug]

There’s entirely too much money being promised in too many directions. Something's gotta give.

 

[M-I-Coug]

There’s entirely too much money being promised in too many directions. Something's gotta give.

Just trees and ink.

 

[BiggsCoug]

I'm finally back in front of a keyboard. I hate more than a sentence or two on a smart phone. My understanding of what you've discussed:

Yes, sole proprietorships are covered (Biggs?). In that case it is just 2.5 months of your income up to $100k/yr last year.

The beauty of this...I wrote a requirement list for our national contractors association with this as the number 1 item, and they seem to have lobbied accordingly, is that it comes through your bank. Already locked and loaded, they just need your SBA paperwork (no fiddling with a website, like phase 1 of these bills, which is why the SBA website is slammed). They will guide you through it. Your bank rep is the guy/girl you need.

Yes, there are some requirements about continuing to employ folks. Not sure if 90% is the number. But that appears to be mostly taken care of by the terms...you only get the 8 weeks fully forgiven for the expenses you incur. If you lay off someone, or cut hours, or cut pay rate, you simply claim less at the end. There is zero (0) incentive to lay anyone off, because you get reimbursed for what you spent on payroll, so why spend less? Key point is that guys already laid off (79 Coug, this is you) after Feb 15 (I think that is the date) can be retroactively brought back on and paid for the 8 week period. At no cost to the employer, because they will recoup the payment.

Now, I have to admit that I am not clear on whether this is the raw payroll number, or whether it includes all the fringes, fees and taxes. I think it is the latter, but I am not 100% on that; it has been moving too fast.

Yes, this is strictly federal.

The US Chamber of Commerce is one of the websites we watched. The Wazzuwatch site won't accept this link; not sure why; but here is the cut and paste. It should work, but if not, you should be able to find it from here. I have faith in you. It was today's webinar.

https://www.uschamber.com/co/events/national-small-business-town-hall-inc-us-chamber

Knowledge is power.

And of course, Go Cougs!

I filled out the paperwork the other day. My business is young so we will see what they say.

 

[cr8zyncalif]

Biggs, if the business is new, there is a provision to use the past several months pre-virus. I don't recall the details, but even new businesses get something.

 

[dgibbons]

There’s entirely too much money being promised in too many directions. Something's gotta give.

Nah. China will increase our credit limit.

 

[AncientCoug]

Nah. China will increase our credit limit.

I’m no economist and don’t completely understand how this all works but it appears the Federal Reserve is buying up nearly all the debt the federal government is currently issuing. They are also buying some of the outstanding corporate debt instruments. It seems they basically create money from thin air when they do that.

It’s not at all clear (to me anyway) what the long term effects of that will be but I don’t think it’s something we should worry much about right now.

 

[dgibbons]

I’m no economist and don’t completely understand how this all works but it appears the Federal Reserve is buying up nearly all the debt the federal government is currently issuing. They are also buying some of the outstanding corporate debt instruments. It seems they basically create money from thin air when they do that.

It’s not at all clear (to me anyway) what the long term effects of that will be but I don’t think it’s something we should worry much about right now.

The Fed is pumping money into the economy to ensure there is no liquidity problems like there were during the recession. Banks literally ran out of money. There are two immediate economic problems: (1) demand for new homes, cars, washers and dryers, air travel, hotel stays, etc. is zero. Both because businesses are not allowed to operate and because consumers will rightfully hoard their cash and only buy necessities; (2) Massive and sudden unemployment. It was something like a 10 fold increase in unemployment claims within about a week.

So yes, the Fed is essentially printing money. Eventually those debt instruments the Fed is buying to inject cash into the economy will be sold to investors, including China.

The interest rate (federal funds) changes get the headlines, but the daily buying and selling of federal debt by the Fed is the tool for controlling inflation.

 

[BiggsCoug]

Biggs, if the business is new, there is a provision to use the past several months pre-virus. I don't recall the details, but even new businesses get something.

That is what I read too. We will see how it shakes out. Fortunately my product won't spoil. I can sell another day.

I have found temporary employment already. It's just a way to keep the wheels greased during this time. I figured now is a better time to find and get a job before millions more get laid off and are also seeking.

 

[cr8zyncalif]

The Fed is pumping money into the economy to ensure there is no liquidity problems like there were during the recession. Banks literally ran out of money. There are two immediate economic problems: (1) demand for new homes, cars, washers and dryers, air travel, hotel stays, etc. is zero. Both because businesses are not allowed to operate and because consumers will rightfully hoard their cash and only buy necessities; (2) Massive and sudden unemployment. It was something like a 10 fold increase in unemployment claims within about a week.

So yes, the Fed is essentially printing money. Eventually those debt instruments the Fed is buying to inject cash into the economy will be sold to investors, including China.

The interest rate (federal funds) changes get the headlines, but the daily buying and selling of federal debt by the Fed is the tool for controlling inflation.

My honors Econ prof at WSU in the late '70's had been with the JFK/LBJ OMB for a time. He spent a couple of days of lecture discussing what we had learned from the tight money failures that kicked off the depression, and his take on the lessons learned. If you find this interesting, there are all manner of depression "lessons learned" discussions available, and they cover a broad swath of territory, from the interventionist viewpoint to the laissez faire view. Despite the many differences, pretty much all agree that permitting everything to collapse due to liquidity problems was a mistake. As Gib notes, the natural order of things when panic occurs is to hold your personal money, as well as trim payroll and all discretionary costs if you are a business. The legislation (I refuse to call it CARES) was what a broad swath of economists would recommend to absolutely assure...within the ability of the government to do so...that a liquidity crisis would be avoided. 8 weeks of payroll and fixed overhead with no incentive to cut salaries, hours worked, etc., with no credit worthiness test, is much more than I expected. I have no complaints; I suspect that when we look back at this in a decade it will be perceived as a fair response to the situation. We will be paying for this for the rest of our lives in taxes & fees, and our generation won't get it cleaned up. Inflation will eventually result. China will get hit worse than we will, because the last thing to return will be consumer discretionary spending, and that has been a steady money pipeline to China for a couple of decades. Despite all of that, it will be better than another depression. I am calling it the "New New Deal".

 

[CPtheCoug]

Remember to be patient. The banks don’t even have the money on hand yet.

It’s probably a good idea to open a separate account for the loan proceeds. Documenting the use of the funds is the key for forgiveness. A separate account will segregate the funds and should make the documentation easier.

Banks will advance funds first, well before ever receiving funds from the feds...

Additionally, they haven't received specific guidance yet on how to even administer the PPP Loan program.

If any of your bankers have been accepting applications for the PPP Loans this week, they're full of crap. They have no idea what they're doing and are just trying to "get their foot in the door first".

 

[dgibbons]

Banks will advance funds first, well before ever receiving funds from the feds...

Additionally, they haven't received specific guidance yet on how to even administer the PPP Loan program.

If any of your bankers have been accepting applications for the PPP Loans this week, they're full of crap. They have no idea what they're doing and are just trying to "get their foot in the door first".

The banks don’t have enough money on hand for an uptick in lending like this. Not even close.

 

[CPtheCoug]

The banks don’t have enough money on hand for an uptick in lending like this. Not even close.

Banks will advance the funds first, then be reimbursed after the fact. Mechanically, that is the reality. Access to capital from existing sources, whether through core capital or outside financing, is much stronger today than 2008. Lets, try, to calm down a bit.

Additionally, your point ignores the main risk to bank lending... until clear guidance is issued banks with strong credit cultures will hesitate funding these PPP loans as they must carry the risk/exposure for a certain amount of time before they can apply, on a per PPP loan basis, for loan forgiveness from the feds. There is still uncertainty on what loan proceeds will ultimately be eligible for forgiveness, which will come later to the banks.

For an example of the sh*t show that is the guidance so far.... it is still unclear what the monthly repayment is going to be on these PPP loans (for the Borrower)... Are we talking interest only? Principal and interest? Principal PLUS interest? This is basic level terms and conditions that the feds can't even get right....

 

[dgibbons]

Banks will advance the funds first, then be reimbursed after the fact. Mechanically, that is the reality. Access to capital from existing sources, whether through core capital or outside financing, is much stronger today than 2008. Lets, try, to calm down a bit.

Additionally, your point ignores the main risk to bank lending... until clear guidance is issued banks with strong credit cultures will hesitate funding these PPP loans as they must carry the risk/exposure for a certain amount of time before they can apply, on a per PPP loan basis, for loan forgiveness from the feds. There is still uncertainty on what loan proceeds will ultimately be eligible for forgiveness, which will come later to the banks.

For an example of the sh*t show that is the guidance so far.... it is still unclear what the monthly repayment is going to be on these PPP loans (for the Borrower)... Are we talking interest only? Principal and interest? Principal PLUS interest? This is basic level terms and conditions that the feds can't even get right....

The banks started getting the money on Friday.

I posted exactly nothing on risk to banks. Your points don’t make any sense. These forgivable loans are not a risk to the banks. The funds are coming from the Fed. The banks are more or less administering grants. The Fed pays the loan fees. These are unsecured loans with no personal guarantees. A “strong credit culture” is meaningless here.

 

[dgibbons]

Treasury has started to push out the forms and guidance.

https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses

 

[cr8zyncalif]

The guidance is pretty incomplete, but I suspect that is because the up front calculation is simply a placeholder. The real calculation will be the reconciliation after the 8 weeks. If you guessed generously up front in figuring out all the fringes to be added, then you will simply owe a little more. If you guessed conservatively, then you will owe a little less. There are many arcane little fees that employers pay as a part of the payroll process, particularly if they are under a collective bargaining agreement (CBA). For instance, for one of our construction unions there is a small cents per hour paid for support of the training center. It isn't clear whether that should be counted up front, but I've just told my payroll person to count everything unless there is a specific prohibition. We are required to provide payroll records (individual, not summarized), but as I see it they are mostly a CYA thing in case something needs to be checked later. I can't imagine the banks actually adding up our payroll records to check our figures before applying.

I will be surprised if $350B is enough to cover 2.5 months of payroll for every business in the US under 500 people. I'd have guessed 2-3 times that. But I suppose we have to start somewhere.

 

[CPtheCoug]

The banks started getting the money on Friday.

I posted exactly nothing on risk to banks. Your points don’t make any sense. These forgivable loans are not a risk to the banks. The funds are coming from the Fed. The banks are more or less administering grants. The Fed pays the loan fees. These are unsecured loans with no personal guarantees. A “strong credit culture” is meaningless here.

You do not understand the mechanics of how this program actually works. Please stop spreading misinformation to your fellow posters. This isn't simply debating wsu football, it's people's livelihood.

 

[Observer11]

You do not understand the mechanics of how this program actually works. Please stop spreading misinformation to your fellow posters. This isn't simply debating wsu football, it's people's livelihood.

Feel free to offer clarity if there is misinformation.

Nothing like the famous "You're wrong" post without any rebuttal or explanation.

 

[dgibbons]

You do not understand the mechanics of how this program actually works. Please stop spreading misinformation to your fellow posters. This isn't simply debating wsu football, it's people's livelihood.

Go ahead and explain what I have wrong. Go ahead and post a link to something like Treasury regulations.

 

[Observer11]

I suppose if a business can’t survive for, what is it, eight weeks before forbearance kicks in there might be a risk.

But if you can’t juggle payables for eight weeks, you probably shouldn’t be in business. Or the business was about ready to tip regardless of COVID.

Otherwise, I’ll need to see more than “you’re wrong” without an explanation.

 

[dgibbons]

I suppose if a business can’t survive for, what is it, eight weeks before forbearance kicks in there might be a risk.

But if you can’t juggle payables for eight weeks, you probably shouldn’t be in business. Or the business was about ready to tip regardless of COVID.

Otherwise, I’ll need to see more than “you’re wrong” without an explanation.

100 percent guaranteed by the SBA. Guaranty fees are waived. SBA pays processing fees.

 

[Observer11]

100 percent guaranteed by the SBA. Guaranty fees are waived. SBA pays processing fees.

As I understand it, the business just needs to keep/pay the employee for 8 weeks and then the forebearance process kicks in. Correct?

Should note that it appears dgibbons and i agree on something. The world is ending.

 

[dgibbons]

As I understand it, the business just needs to keep/pay the employee for 8 weeks and then the forebearance process kicks in. Correct?

Should note that it appears dgibbons and i agree on something. The world is ending.

Document uses of the funds too. Borrowers have to apply for forgiveness.

 

[CPtheCoug]

Feel free to offer clarity if there is misinformation.

Nothing like the famous "You're wrong" post without any rebuttal or explanation.

Well my rebuttle/explanation were actually posts #24 and #26 above. You may read at your leisure.

Go ahead and explain what I have wrong. Go ahead and post a link to something like Treasury regulations.

"Something like Treasury Regulations". I actually laughed at that sentence. You are very smart, so you already know that the guidance, all last week, was getting updated at an almost daily rate. For example, as of Wednesday last week the "guidance" said interest rates were to be 0.50%.... As of late last Friday that changed to 1.0%....

"The banks dont have enough money" ....
Whos bank? Your bank? My bank? Which banks? And what is "enough" based on? Links please.

"The banks are getting money"
Whos bank? Your bank? My bank? Which banks? Do you mean Mnuchin's tweet about $1.8 billion already being processed to community banks? I suppose I would ask, what does "processed" mean to you?

As of late Friday night the ETRAN portal was not open. No ETRAN number means no money. Now as I'm writing this post now that could have changed, which is also what is so frustrating about the roll out of this program.

I suppose if a business can’t survive for, what is it, eight weeks before forbearance kicks in there might be a risk.

But if you can’t juggle payables for eight weeks, you probably shouldn’t be in business. Or the business was about ready to tip regardless of COVID.

Otherwise, I’ll need to see more than “you’re wrong” without an explanation.

As I understand it, the business just needs to keep/pay the employee for 8 weeks and then the forebearance process kicks in. Correct?

Should note that it appears dgibbons and i agree on something. The world is ending.

Did you mean forgiveness instead of forbearance? Loan term is 2 years. First six months payments are deferred, but interest still accrues (but hey, that could change). It's also unclear when forgiveness actually happens.... The 8 week metric you are referring to is the forgiveness portion of the program. Loan proceeds spent within the first eight weeks of the term, from the date of loan funding, that are spent on expenses that qualify for loan forgiveness (payroll, for example) can be forgiven. Does that mean after 8 weeks that portion of the loan is forgiven? Or at maturity?

To echo cr8zyncalif, things are unclear.

 

[dgibbons]

Well my rebuttle/explanation were actually posts #24 and #26 above. You may read at your leisure.



"Something like Treasury Regulations". I actually laughed at that sentence. You are very smart, so you already know that the guidance, all last week, was getting updated at an almost daily rate. For example, as of Wednesday last week the "guidance" said interest rates were to be 0.50%.... As of late last Friday that changed to 1.0%....

"The banks dont have enough money" ....
Whos bank? Your bank? My bank? Which banks? And what is "enough" based on? Links please.

"The banks are getting money"
Whos bank? Your bank? My bank? Which banks? Do you mean Mnuchin's tweet about $1.8 billion already being processed to community banks? I suppose I would ask, what does "processed" mean to you?

As of late Friday night the ETRAN portal was not open. No ETRAN number means no money. Now as I'm writing this post now that could have changed, which is also what is so frustrating about the roll out of this program.






Did you mean forgiveness instead of forbearance? Loan term is 2 years. First six months payments are deferred, but interest still accrues (but hey, that could change). It's also unclear when forgiveness actually happens.... The 8 week metric you are referring to is the forgiveness portion of the program. Loan proceeds spent within the first eight weeks of the term, from the date of loan funding, that are spent on expenses that qualify for loan forgiveness (payroll, for example) can be forgiven. Does that mean after 8 weeks that portion of the loan is forgiven? Or at maturity?

To echo cr8zyncalif, things are unclear.

You’ve added nothing of importance. And you apparently don’t realize that the federal government is telling small businesses to borrow and lenders to lend. Treasury is saying first come first serve.

What is the bank risk? Go ahead and explain it because your previous post still makes no sense.

 

[CPtheCoug]

You’ve added nothing of importance. And you apparently don’t realize that the federal government is telling small businesses to borrow and lenders to lend. Treasury is saying first come first serve.

What is the bank risk? Go ahead and explain it because your previous post still makes no sense.

You have already been told. Let me list it for you.

1. Borrower applies for PPP to Bank, using HOPEFULLY the correct SBA forms.
2. Bank must verify application is correct, and supporting documentation. Bank pre-lim approves loan if everything okay. This first package determines the loan amount, but NOT FORGIVENESS.
3. Bank sends this package to SBA, if everything "okay" SBA pre-lim approves package. ETRAN number generated.
4. Bank has ETRAN number, is now reasonably confident that loan is SBA guaranteed and is reasonably confident loan forgiveness will be approved.
5. Bank issues funds to Borrower.
6. HERE IS THE GAP, the RISK PART. Funds are out the bank's doors to the borrower. No forgiveness issued yet. Borrower still owes money to the bank at this point.
7. Some time later, after the first 8 weeks of the term of the loan. Borrower goes back to bank with similar paperwork to have their loan forgiven (or at least a portion of loan forgiven). This 2nd package details the use of loan proceeds, when they were used, etc....
8. Bank verifies "forgiveness" package is correct, and reapplies to SBA.
9. SBA reviews forgiveness package. If approved, funds transferred to bank. Bank "forgives" loan to borrower.

The risk: Unclear guidelines, which creates uncertainty. SBA is very strict with their guidelines and paperwork. No bank is going to issue millions of dollars of loans if they are uncertain it will be "forgiven" by the SBA. The SBA will deny loan forgiveness for a number of reasons... wrong paperwork, wrong loan amount calculation, incorrect use of loan proceeds on items that are not forgivable. Furthermore, what is the guidance on what happens if a loan, or a portion of the loan, is not forgiven? Does it turn into an automatic 10 year term loan at the 2 year maturity date? Or is there a balloon payment at the 2 year maturity date? There will be more delays, and more pissed off people. This whole notion of "BANKS GETTIN THEIR MUNAY" is just wrong.....

Does this make sense to you?

 

[COUGinNCW]

Well my rebuttle/explanation were actually posts #24 and #26 above. You may read at your leisure.

1% vs 1/2%, BFD. If I'm a business I'm getting as big as a loan as possible. Even if it's all not forgiven, when else will you be able to get money this cheap? There is a good chance a lot of business are going to need more than 8 weeks of payroll forgiveness depending on long this thing goes on.


"Something like Treasury Regulations". I actually laughed at that sentence. You are very smart, so you already know that the guidance, all last week, was getting updated at an almost daily rate. For example, as of Wednesday last week the "guidance" said interest rates were to be 0.50%.... As of late last Friday that changed to 1.0%....

"The banks dont have enough money" ....
Whos bank? Your bank? My bank? Which banks? And what is "enough" based on? Links please.

"The banks are getting money"
Whos bank? Your bank? My bank? Which banks? Do you mean Mnuchin's tweet about $1.8 billion already being processed to community banks? I suppose I would ask, what does "processed" mean to you?

As of late Friday night the ETRAN portal was not open. No ETRAN number means no money. Now as I'm writing this post now that could have changed, which is also what is so frustrating about the roll out of this program.






Did you mean forgiveness instead of forbearance? Loan term is 2 years. First six months payments are deferred, but interest still accrues (but hey, that could change). It's also unclear when forgiveness actually happens.... The 8 week metric you are referring to is the forgiveness portion of the program. Loan proceeds spent within the first eight weeks of the term, from the date of loan funding, that are spent on expenses that qualify for loan forgiveness (payroll, for example) can be forgiven. Does that mean after 8 weeks that portion of the loan is forgiven? Or at maturity?

To echo cr8zyncalif, things are unclear.