Danielle DiMartino Booth of Quill Intelligence, Brian Trust, Chief Economist of First Trust Advisors, and Sam Stovall, CFRA’s Chief Investment Officer, provide insight into the markets and the confirmation of Janet Yellen as Secretary of the Treasury.
The Salary Protection Program, a key lifeline that helped keep pandemic-ridden small businesses afloat, was fully reopened to all participating lenders on Tuesday after initially restricting who was eligible.
In an effort to correct past criticisms that the program has benefited larger lenders, the rescue fund – which offers lucrative loans to businesses if they maintain their payroll – was initially only available to first-time lenders, according to new guidance of Small Business Management. and the Treasury Department.
In the first two days of the program, the federal government also gave preference to minority-owned businesses by only accepting loan applications from certain lenders that focus on sub-communities. Although the federal government supports the loans, the money is issued by financial institutions such as banks, credit unions and community credit providers. Most borrowers who participated in the previous rounds are expected to do so again.
Congress established the rescue fund earlier this year with the adoption of the CARES law at the end of March. Legislators authorized another $ 284 billion last month to offer a second round of forgiving loans to small businesses as part of the $ 900 billion more comprehensive COVID assistance plan, bringing the total funding value of the program to $ 806 billion bring.
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At least $ 40 billion has been set aside for businesses with ten or fewer employees and for loans under $ 250,000 in low-income areas.
The new program is expected to provide the much-needed relief to the U.S. economy after employers unexpectedly cut 140,000 jobs in December amid a nationwide increase in COVID-19 cases.
Although the eligibility formula is the same for first-time applicants, only businesses with 300 employees or less are eligible to receive a second loan, which will receive a maximum of $ 2 million. Borrowers wishing to get a second forgivable loan must also prove that they saw a 25% decrease in gross income during a quarter in 2020, compared to the same quarter in 2019.
Second borrowers who take out loans of $ 150,000 or less do not have to immediately provide documentation proving a 25% reduction in receipts, and can do so according to the rules before applying for forgiveness.
During the first round, businesses with less than 500 employees could receive as much as $ 10 million.
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Businesses will still be required to spend at least 60% of the money on wage maintenance so that the government can forgive the full loan. The remaining 40% can be spent on operating costs such as mortgage lending, rent and utilities.
With the launch of the program, it was heavily criticized for providing assistance to trading companies that had other options to alleviate – even though small businesses were shrinking. The SBA and the Treasury Department, which jointly manage the program, sought to close the loopholes through which multimillion-dollar businesses could leverage the fund, including investigating a loan worth more than $ 2 million.
Over the course of about four months, the PPP distributed about $ 525 billion in lenders to 5.2 million companies, saving an estimated 50 million jobs, according to the SBA. The program closed for new applicants at the end of July, with about $ 38 billion in the fund.
The program is expected to be close to all lenders on March 31st.
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