On March 27th, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed by Congress with the intention of providing assistance for those most impacted by the pandemic, including individuals, small businesses, and state and local governments.
A large portion of the CARES Act funding was allocated for the Payment Protection Program (PPP), a loan program designed to incentivize small businesses to keep workers on their payroll. The Small Business Administration (SBA) will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. The first round of PPP funding consisted of $349 billion in loans, but the money quickly ran out. A second round of funding was announced on April 27th, with $310 billion added. The intention: to not only provide needed funds for those applicants from the first round who didn’t receive funding, but to also better serve minority-owned businesses, with $60 billion set aside for community-based lenders and mid-sized banks.
While the PPP lending program continues to evolve, other lending programs have been initiated. The Federal Reserve is offering an alternative: The Main Street Lending Program, for businesses with fewer than 10,000 employees and revenues of less than $2.5 billion. Instead of loan forgiveness, the Fed will purchase 95% of a loan disbursed to a company that meets its requirements, thereby reducing most of the risk for the lender.
Banks are on the front line, quickly ramping up their intake processes and building solutions to deliver government relief to small business owners, while anticipating their needs going forward. The stakes are high; banks must address a variety of factors to successfully mitigate the risks associated with the loans’ implementation.
CARES Act Insights
PPP Loan Calculator
CapTech created a PPP calculator web and mobile application to help banks support the customer journey and loan lifecycle, while adhering to Federal requirements and mandates. This calculator reduces manual inefficiencies across loan forgiveness for both the small business owner and the banks, while improving financial outcomes and planning for the small business owner.
As COVID-19 and the economic downturn continue to evolve, financial institutions are faced with fast-moving – and ever-changing – government relief programs. CapTech Consulting Co-CEO Steve Holdych and McGuireWoods Partner Alex Brackett provide perspective on the current environment and how the industry can prepare to meet a host of potential challenges.
Webinar: Rough Waters Ahead For Financial Institutions
Financial institutions are at the forefront of the government relief programs, providing critical loans to small businesses. CapTech and McGuireWoods hosted a panel discussion, sharing perspectives on how to manage this unique environment, with an emphasis on mitigating the legal, operational, and reputational risks facing financial institutions.