Financial institutions are awaiting additional guidance from federal officials before making available an array of financial relief programs for businesses impacted by the COVID-19 coronavirus pandemic.
It’s not clear when that guidance will come, but in the meantime, lenders are asking borrowers to remain patient – the pandemic requires an unprecedented solution that experts say, all things considered, is happening rapidly.
From a lender’s perspective, the CARES Act and its $2.2 trillion stimulus package along with the Small Business Administration’s Economic Injury Disaster program are moving at lightning speed, said Rose Oswald Poels, Wisconsin Banking Association president and chief executive officer.
“People do need to have a little bit of patience to allow the process, the infrastructure and system to be put in place to allow this to happen,” Oswald Poels said.
Several borrowers have already called lenders with the expectation that federal loan programs are readily available. But as of right now, lenders do not have all the information they need to administer loans to their customers, especially when it comes to the loan forgiveness component of federal economic relief programs, said Wendy Sowinski, Ixonia Bank commercial banking senior vice president.
“What is the process for forgiveness going to look like?” Sowinski said. “If we don’t have that detail at the onset, we’re not able to prepare a loan agreement.”
While the back-end processes of these economic relief programs continue to be worked out, it’s important for business owners to start weighing their options on the front end. It’s possible, Sowinski said, that business owners who felt the Paycheck Protection Program (PPP) under the CARES Act was their best option may discover the EIDL (Economic Injury Disaster Loan) program is better suited for their situation.
Loan forgiveness is a critical component for businesses experiencing economic hardship. Under the PPP, an employer could have his or her loan forgiven entirely if the funds are spent properly. On the other hand, loan forgiveness available through EIDL will be no more than $10,000.
The PPP is designed to incentivize small businesses who are able to maintain employees and wages despite the pressure from a slowed economy. However, if a business already let go some employees, they still could be eligible for the PPP.
As long as a business can show it had employees as of Feb. 15, 2020, once approved for the loan, those funds can be used to rehire staff. Loan forgiveness will also apply so long as any employees let go are rehired by June 30.
“From a strategic perspective, whether it’s a reduction in force or salary reduction, that’s something that our clients are taking into consideration,” said Casey Fleming, an attorney and partner and Foley & Lardner LLP.
It wouldn’t hurt a business to apply for both programs since each have a set of eligibility requirements. In the event a business is not eligible for one, it would be beneficial to at least have the other one in the hopper.
While the economic impact of the pandemic is unique to each business, there is a general way of considering which program is the appropriate solution. If you’re a business that believes you’ll need to weather a short-term storm, then PPP is a good option, said Steve Baas, Metropolitan Milwaukee Association of Commerce senior vice president of governmental affairs.
However, if you’re a business or in an industry whose recovery is not short-term, and that long-term ramifications will change the way you do business, then EIDL may be more suitable, he added.
“The biggest advice we’re giving everybody is get on it quickly,” Baas said. “The system both at the private lender level and SBA level is sure to be somewhat overwhelmed by the demand so we’re impressing on people a need for speed and getting in the queue.”
Businesses can apply to the EIDL program here. PPP applications will be accepted starting Friday and can be accessed here, along with a mock form of the application.