Bank & Credit Union Guide to the CARES Act and the Paycheck Protection Program

What does this mean for financial institutions?

The Small Business Administration (SBA) and The United States Treasury have announced a joint mobilization effort of lending institutions, including banks and credit unions, to provide small businesses with the capital they need to cover payroll costs and operating expenses. To achieve this, these agencies have established of the Paycheck Protection Program through the CARES Act. It is a $350-billion program that is designed to assist small businesses in paying employees and operating expenses. It allows for necessary capital to reach businesses, without collateral requirements or personal guarantees.

While guidance is still forthcoming, our Paycheck Protection Program FAQ answers questions from business eligibility to underwriting guidelines.

Paycheck Protection Program FAQ¹

What businesses are eligible for the Paycheck Protection Program?

• Any business that is defined as a small business based on the SBA definition
• Any non-profit, veteran organizations, and tribal businesses who employee less than 500 people
• Any self-employed individual, including sole proprietors and independent contractors

What period is covered by the Paycheck Protection Program?

• The new loan program is retroactively available from February 15, 2020 to June 30, 2020, so employers can rehire recently laid-off employees through June 30, 2020

What is the maximum loan amount?

• The maximum amount is the lesser of the following:
  • 2.5 times the monthly average of the business’ payroll costs
  • $10 million

How does loan forgiveness work?

• Businesses are allowed loan forgiveness if the amount spent within an 8-week period from the date of loan origination is used for the following:
  • Payroll
  • Operating costs (i.e., rent, utilities, etc.)

What are the terms of the Paycheck Protection Program loan?

• Interest rate of 1% to 5%, depending on size of the financial institution
• No collateral needed
• No personal guarantees
• No borrower or lender fees payable to the SBA
• 100% guarantee by the SBA
• Maturity of 2 years
• First payment deferred for 6 months

What underwriting is required?

• Verification that a borrower was in business as of February 15, 2020
• Verification that a borrower had employees for whom the borrower paid salaries and payroll taxes
• Verification of the amount of average monthly payroll costs
• Ensure your institution is following all applicable Bank Secrecy Act requirements

What are the borrower certification requirements?

• The funds will be used to retain employees and maintain payroll or make payments for rent, utilities, or mortgage
• The funds are necessary for ongoing operations during this time of economic uncertainty
• There are no pending application for duplicate funds
• The business has not received funds under this program before

We know these are uncertain times for banks and credit unions.

Here are some additional government resources available to lenders:

• Paycheck Protection Program – Interim Final Rule
• U.S. Department of the Treasury
• Small Business Administration Guidance and Resources

1. https://home.treasury.gov