• $349 billion small business loan program opens today
  • Lenders poorly prepared, receive guidance at the last minute
  • Community banks worry interest rate too low for profitability

Today the "Paycheck Protection Program" created as part of the CARES Act begins accepting applications for small businesses loans of up to $10 million at a 1% fixed interest rate. The third coronavirus stimulus bill allocated $349 billion for this purpose.

The loans will be forgiven as long as the funds are only spent on payrolls, mortgage interest, rent, and utility costs over the 8-week period after the loan is made. Businesses must retain workers and maintain compensation levels and not more than 25% of the forgiven amount can be used for non-payroll expenses. Payroll costs are capped at $100,000 on an annualized basis for each employee. For more information on how your small business can be helped, click here.

The stimulus program for small businesses is launching despite reports that lenders received Treasury guidance on Thursday night and are not prepared or clear on the rules. "Having just received guidance outlining how to implement a $349 billion program literally hours before it starts, we would ask for everyone to be patient as banks move heaven and earth to get a system in place and running to help America’s small businesses and the millions of men and women who work at them," said Consumer Bankers Association President and CEO Richard Hunt Friday morning. JPMorgan has sent out an email saying it will not be accepting applications today, according to a Wall Street Journal report. Bank of America's portal went live at 9:00 am ET, making it the first of the four major banks to participate. However, it's only accepting applications from existing customers with deposit accounts and loans at the bank as of mid-February.

The newspaper reported that smaller banks also forced the government to double the interest rate from 0.5% a day before the program's launch as they faced "unacceptable losses." The Independent Community Bankers of America, that represents banks with 52,000 locations, wrote a letter to Trump administration officials yesterday that said, "We recommend changing the guidelines to allow for rates at the 4% level provided for in the CARES Act or as close as possible to that level." The letter also said loan terms are too short at two years, a lack of guidance shifts too much liability to the lender and the Fed needs to create a liquidity facility for community banks to obtain advances to help fund the loans and quickly securitize any unforgiven balances. 

As for the $1,200/adult direct payments, a Treasury Department official told NBC News that 50-70 million Americans will receive it through direct deposit by April 15. The department is working to put up a website where people can provide direct deposit information if it's not on file. The IRS will also start sending out paper checks starting on an unspecified date in April. This timeline for paper checks is faster than what was reported earlier in the news.

A lot is riding on the success of this program and the rapid disbursement of checks. Thirty-eight states have announced full lockdowns to curb the spread of the virus and the federal government extended its guidelines through April 30. New jobless claims hit 6.6 million in the week ended 28 March, beating the previous record of 3.3 million set a week earlier. U.S. payrolls fell 701,000 and the unemployment rate rose to 4.4% in March, the highest level since August 2017, from 3.5% in February.