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Payment Protection Program

Probably the biggest economic news right now is the Paycheck Protection Program (PPP), the pool of almost $350 billion in forgivable small business loans that is one of the main components of the federal Coronavirus Aid, Relief and Economic Security (CARES) Act.

Today’s bulletin will be a little different as we do a deeper dive on this one topic – what the PPP is supposed to do, the hurdles and hiccups it has faced in its first week, and how the government and financial institutions are responding.

#1. What does PPP do and what do businesses need to know? There’s not enough space here to go into all the details of PPP, but here’s the broad outline: It is a potentially forgivable loan made to small businesses to keep their workers on the payroll during the current economic shutdown. Businesses can borrow up to 2.5 times their average monthly payroll costs. The loans can be forgiven if all employees are kept on the payroll for eight weeks and the loan is used as intended; for payroll, rent and utilities. Eligible businesses must have less than 500 employees (the exception is hospitality businesses that are part of a large chain – in those cases, the employee count is per location). The businesses also must be based in the United States and been in operation since at least Feb. 15 of this year.

Seems simple, right? Of course, the devil is in the details. For an excellent, highly readable article addressing the most common questions about PPP, check out this piece published yesterday by Forbes.

#2. So what happened this past week? Unlike the $1,200 stimulus checks for individuals in the CARES Act, PPP funds are not direct payments made by the federal government. Instead, they are administered by individual financial institutions that are eligible to provide Small Business Administration loans. These banks had exactly one week between the signing of the CARES Act and the program launch to figure out how to implement millions or billions of dollars in new loans.

The result was a bit chaotic. Small business owners couldn’t get through to their banks on the phone. Websites crashed. Application forms weren’t ready. Different banks had different rules about who could get a loan, with some requiring that you had to have an existing business loan with that institution in order to apply for PPP.

However, it seems like these restrictions are loosening on a daily, and sometimes hourly, basis. Wells Fargo, which had closed its portal for PPP loans because it had reached a $10 billion federally imposed asset cap, was able to start processing loans again yesterday after the feds lifted that cap. Bank of America, which originally required an existing business loan in order to apply for PPP, now says a business checking account will do (provided you’ve had that account since Feb. 15).

One constant rule, however, is that the bank must be a SBA-eligible lender. To see a list of eligible banks in your area, check out this SBA tool. The SBA continues to add more approved SBA lenders, so check back frequently to see the most up-to-date list.

#3. The future of the PPP. Demand for PPP loans are likely to increase starting tomorrow, when independent contractors and self-employed individuals can begin to apply. Most federal leaders agree that more money – probably another $250 billion – is needed for the fund.

Agreeing that you need to do something, however, is not the same as agreeing on how to do it.

This morning, an attempt by the Republican-led Senate to add more funds by unanimous consent failed as Democrats held out for a larger negotiated package that would also include more money for hospitals, states and cities as they continue to deal with the fallout of COVID-19. The Hill published an article this morning outlining the impasse.

Despite these issues, however, it should be noted that according to Treasury Secretary Steve Mnuchin, about $90 billion in loans – roughly a quarter of the fund – have already been approved as of last night.

#4. And in non-PPP news, two quick items to end this bulletin on a positive note.

Kudos to all the local and county boards that are taking steps to protect citizen participation even as they practice social distancing. You may have noticed a trend in video streaming and telephone-based government meetings in northern Arizona. Most provide ways to speak during the the public participation portion of the meeting, typically by phoning in questions or comments. Check with your local government’s website for details on how they are handling public meetings in this era.
Earlier this week, Governor Doug Ducey issued an Executive Order allowing Arizona restaurants to repackage and sell grocery items they have on hand, including items not normally packaged and labeled for resale. Details here. This is good news for our local restaurants as they look to sell the goods they cannot use right now.

Gail Jackson

Interim President & CEO
Economic Collaborative
of Northern Arizona


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