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

Ruth's Hospitality

27/04/2020 15:55

(Adds details on lender limits, bundling)
    By Katanga Johnson
    WASHINGTON, April 27 (Reuters) - The Small Business
Administration on Monday began to allow lenders to process $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 with under $10
billion in assets and $30 billion for those with between $10
billion and $50 billion in assets.
    On Sunday, the SBA also said in a memo it is setting a
maximum dollar amount for individual lenders at 10% of Paycheck
Protection Program funding, or $60 billion per lender, in this
round to prevent any single bank with back-logged applications
dominating this round of funding. While it appears no single
bank has hit the cap, "it seems a politically astute move," said
Jaret Seiberg, an analyst at Cowen Washington Research Group.

    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.
    The SBA will also take applications in one bulk submission
for lenders submitting a minimum of 15,000 loans. This should
help those financial institutions that already had a significant
back-log of applications pending before money ran out in the
first round.
    It could, however, also mean the new funds are depleted 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 what businesses are 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 Steven 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 and Lindsay Dunsmuir; writing by
Michelle Price; Editing by Sonya Hepinstall and Dan Grebler)
 ((Katanga.Johnson@thomsonreuters.com; 202-898-8403; Reuters
Messaging: Katanga.Johnson.thomsonreuters.com@reuters.net))