Businesses can begin preparing now to apply for assistance under the federal rescue package signed last week by President Trump, but it will be about two weeks before they can turn in their paperwork, Arkansas bankers and government officials said.
Trump signed the $2.2 trillion Coronavirus Aid, Relief & Economic Security (CARES) Act on Friday. The unprecedented aid package offers relief to individuals and businesses rocked by the COVID-19 pandemic.
That includes loans, grants and tax breaks to big and small businesses. It will also send billions to the nation's health care system, along with states and local governments. Arkansas’ share amounts to $1.25 billion.
But it will take about 15 days for the U.S. Small Business Administration to develop guidance for administering some elements of the package. That includes a forgivable loan program called Paycheck Protection, which would encourage businesses with fewer than 500 employees to retain workers and maintain wages. Businesses will apply for the loans through their banks.
Clay Glasgow with the business advisory and public accounting firm HoganTaylor LLP of Little Rock said the Paycheck Protection Program is of high interest to businesses.
“And you can tell by the name of it [that] it’s intended to incentivize businesses to keep their employees and not implement steep pay cuts during this pandemic,” Glasgow said. “So what they're doing is they're allowing businesses to obtain and then have the opportunity to have that loan forgiven if they maintain the same number of employees and don't cut pay any more than 25%.”
Businesses can borrow up to 2.5 times their average monthly payroll cost, Glasgow said. The forgiveness amount is based on the amount of payroll, health care benefits, salaries, rent, utilities and mortgage interest spent in the eight weeks after the loan is received, he said.
There’s a grace period to bring people back and restore their pay for businesses that have already furloughed or laid off employees, he said. Under that period, businesses will have until June 30 to rehire employees or restore their pay and not have either count against their loan forgiveness.
“Most of the clients that I'm talking to, that is what they want to do. They want to take care of their employees,” Glasgow said. “They want an avenue for that to happen. So that's the whole spirit behind this.”
Edward Haddock, district director for the Arkansas District Office of the SBA, said phone calls to his office about the program have been coming “nonstop.”
“There's a lot of questions about, ‘What will I be eligible for, and if I get this one will I get that one?’ And that's what everyone's trying to figure out right now,” he said. “And that's what policy is being written on right now ... how do all these work, and how do you pick and choose.”
Haddock said the SBA is trying to get guidance out quickly in order to fit the timeframe set out in the act.
“Through this CARES Act, SBA has to work within all the partnerships and [with] all the lenders and make sure they're prepared to do these properly, and get the money out,” he said. “So that's what SBA is working on right now, before the businesses really can go out and grab that relief that's available. But I can tell you we're working diligently on that.”
Chris White, Arkansas regional community president for Simmons Bank, likened it to “a holding period.”
“However, our customers are either calling us nonstop and/or we're reaching out to them,” he said. “And it’s not just our customers; it's non-customers that know that we are a preferred SBA lender. And it’s other banks that aren’t the preferred lender and don’t know that much about SBA.”
White said he thinks he could see guidance by Friday of next week, perhaps a bit sooner.
“The problem with that is it's a time crunch,” he said. “So what's the delay? So we've already delayed what, like three weeks, and then you're talking about at least another week and a half…”
In all, White said it could be two months before businesses see Paycheck Protection Program money to cover payroll, rent and other expenses.
Glasgow, Haddock and White all said businesses should start collecting the detailed financials they’ll need for the application process. Businesses should also know what their run rate — or burn rate — is during the pandemic and understand what their overhead is, Haddock said. He also suggests signing up for emailed updates from the SBA.
Glasgow said businesses need to be thinking about their record-keeping practices as well, because they will have to show how they spent the Paycheck Protection Program loan money. “They're going to have to be able to go back to the bank later and show them that they spent the money on the expenses that are eligible for the forgiveness,” he said.
White said Simmons Bank is developing marketing materials for all SBA products and other in-house loans the bank can help them with, such as deferment loans.
“But a majority of our clients are waiting on that PPP loan” because it is forgivable, he said.