Get all the latest news on coronavirus and more delivered daily to your inbox. Sign up here.
The loan program that could bail out Main Street suffering from the economic shock of the coronavirus pandemic will begin Friday, but bankers are urging small businesses that need the money to start applying now or risk being left behind when the rush of small businesses seeking cash begins later in the week.
“This is not a time to hesitate; small businesses should put their application in the queue ASAP,” Eugene Cornelius, senior director of regional economics at the Milken Institute, tells FOX Business.
Before joining Milken, Cornelius was also a top official in the U.S. Small Business Administration, or SBA, which is among the handful of government agencies that will need to provide guidance to banks on the mechanics of making loans to small businesses.
And it's unclear just how ready banks are for the onslaught of lending that will be coming their way.
In general, large money center banks like JP Morgan have most of the infrastructure set up to handle loans from their small business customers. Other banks appear less prepared and are telling customers they still need to hear from the SBA or bank regulators on how the administration of the program, which is scheduled to be fully operational in a matter of days, will work, FOX Business has learned.
Getting money to small businesses will be crucial in softening the economic blow already dealt to the economy by the virus. Lockdowns and quarantines have shuttered restaurants, salons, shops and other so-called mom-and-pop companies. These businesses typically employ 500 people or less but are generally considered the backbone of the economy since they employ nearly 50 percent of all American workers.
The small business piece of the $2 trillion stimulus package, known as CARES, is designed to provide these businesses with $350 billion in loans. Businesses that follow guidelines for using this money — like keeping on a certain number of employees and keeping wages constant —will be eligible for loan forgiveness.
"The SBA is working very closely with the Treasury, we expect to have a program up on Friday that will be up and running that will cover half of the private workforce," he said. "I encourage all small businesses to take out these loans because if you go and hire back your workers for eight weeks you will have a forgivable loan and the government will pay for that. Again, it is very important for us that workers are protected," he noted.
This groundwork is aimed at helping small businesses survive in the short-term.
“This rescue package was essential to the survival of small business, what the president has called the driving engine of the country,” Alfredo Ortiz, the chief executive of the Job Creators Network, a small business advocacy group, tells FOX Business. “There’s more work to do to ensure small businesses get the loans they need, but the groundwork is being laid for a massive Main Street recovery when this is over.”
Based on interviews FOX Business has conducted with policy experts, think tank leaders and bankers, businesses planning to apply for loans should get in line now.
Information to know before you begin the process:
- Small business can receive the lesser of up to $10 million or 2.5 times their payroll over a period of several months in the form of a loan. In other words, before even applying call your accountant and get details about the size of your payroll.
- Small businesses must contact their business lender at a bank to tap into the new loan program. Don’t call the SBA or any government agency. The banks have been given power to make loans under the act and will dole out money based on criteria that’s in the law.
- Small businesses should be able to receive loans immediately if they have an existing relationship with a bank. That’s why it’s important to get the ball rolling by calling your banker and setting up the application process before the rush for money begins later in the week.
- Small businesses that are not working with a bank will have greater difficulties tapping into the bailout loan programs. Those small businesses should start a relationship with a bank immediately.
While bankers and people running small businesses tell FOX Business they are worried the government won’t be able to provide guidelines before Friday, the Treasury Department is expected to release broad guidelines later Monday. Despite the confusion, bankers say they still believe they can have their own digital loan systems set up by the end of the week and can begin making loans immediately.
The stimulus comes none too soon — as roughly 3.3 million Americans filed for unemployment last week and an estimated 47 million total could lose their jobs, according to a St. Louis Fed projection. Small business layoffs comprised a huge chunk of the newly unemployed.
But many in the White House remain hopeful the CARES package will stop some of the bleeding. In an interview with FOX Business Monday, Mnuchin said he expects the program to run smoothly and added, “If we run out of money, and this is a huge success, we will absolutely go back to Congress and ask for more money.”