Editor’s Note: Since this article was published, the Treasury Department and the Small Business Administration have updated the terms of the Paycheck Protection Program loans for both lenders and borrowers.
Banking and lending will feel impacts from the $2 trillion federal Coronavirus Aid, Relief and Economic Security (CARES) Act passed last week, most notably the new loan U.S. Small Business Administration loan program.
The $349 billion Paycheck Protection Program provides SBA 7(a) loans to small businesses affected by the coronavirus crisis. Business owners can take loans up to $10 million at rates no higher than 4 percent. Payments can be deferred for six months.
Business owners can also receive forgiveness on a portion of the loan representing eight weeks of funds that went toward payroll, rent, mortgage interest and utilities.
Jon Skarin with the Massachusetts Bankers Association said the industry was pleased that these SBA loans had been established and expects the $349 billion to be used up quickly.
Massachusetts has many banks already active as SBA lenders, he said, but added that the industry as of Tuesday morning was still waiting for guidance on how the process for applying and disbursing the funds.
“From an industry perspective, we’re hearing that banks are really committed to continuing to support their customers,” Skarin said.
Other provisions put into law for the duration of the coronavirus emergency certain guidance that bank regulators and federal agencies had already provided, including the option to delay implementation of current expected credit loss standards (CECL).
The CARES Act also confirmed that loan modifications during the crisis would not need to be classified as troubled debt restructuring for accounting purposes and would not be subject to criticism during regulatory exams.
For mortgages, borrowers can request forbearance on federally backed mortgages, including those backed by Fannie Mae, Freddie Mac, the Veterans Affairs and the Federal Housing Authority.
Another provision of the law reduces the Community Bank Leverage Ratio from 9 percent to 8 percent, allowing banks to be considered well-capitalized while continuing to lend to customers.
