Explainer: U.S. payroll protection program: What has changed in round two?

Ruth's Hospitality

27/04/2020 12:00

By Katanga Johnson
    WASHINGTON, April 27 (Reuters) - The Small Business
Administration (SBA) on Monday will release $310 billion in
funds for the second round of its program that aims to help
small businesses hurt by the novel coronavirus disruption to
cover their payroll costs. 
    After concerns that some of the first tranche of money
bypassed small businesses in favor of Wall Street companies and
big business, Congress, the SBA and the U.S. Treasury Department
have made changes to program rules.  urn:newsml:reuters.com:*:nL2N2CB0JC
    The second round will also include potentially hundreds of
millions of dollars returned by big companies after the furor,
on top of the $310 billion. 
    
    COMMUNITY BANKS, NON-PROFITS
    In this round, Congress has ring-fenced $60 billion for
Community Development Financial Institutions (CDFIs), Minority
Depository Institutions (MDIs), community banks, credit unions,
and certified development companies and microlenders whose small
business customers are often minority-owned businesses. 
    That includes $30 billion for institutions under $10 billion
in assets and $30 billion for those with between $10 billion and
$50 billion in assets.

    PAPERWORK, TECH PROBLEMS 
    In the first round, the SBA and the Treasury had to write
the rules of the program on the fly, leading to confusion over
its terms. In addition, thousands of lenders who were not
signed-up with the SBA had to create new accounts, which took
days. These bottlenecks slowed the program down initially.
    While there are still some wrinkles with the rules and
potential for the SBA's system to struggle under the influx of
applications, those teething problems have largely been
addressed, lobbyists for the banking industry say. 
    That could mean the new funds are burnt through in roughly a
week, bankers say. 
    
    TIGHTENED ELIGIBILITY
    With intensifying scrutiny of hedge funds, listed companies
and big restaurant groups that sought loans, the Treasury has
tightened up on who is eligible under the program. 
    On Friday, it said that publicly listed companies may apply,
but firms must satisfy, in good faith, that the "current
economic uncertainty makes the loan necessary to support ...
ongoing operations."
    Treasury Secretary Mnuchin warned this week that many public
companies could not make such a certification in good faith,
raising the prospect they could be probed for fraud. 
    The Treasury also said that hedge funds and privately equity
firms are not eligible because they primarily engage in
investment or speculation, businesses already banned from SBA
borrowing. 

 (Reporting by Katanga Johnson; writing by Michelle Price
Editing by Sonya Hepinstall)
 ((Katanga.Johnson@thomsonreuters.com; 202-898-8403; Reuters
Messaging: Katanga.Johnson.thomsonreuters.com@reuters.net))