Steven Mnuchin, U.S. Treasury Secretary, speaks during a coronavirus task force press conference at the White House in Washington, DC, U.S., Thursday, April 2, 2020.
Kevin Dietsch | Bloomberg | Getty Images
The Treasury Department has changed the terms of some loans it offers to small businesses during the coronavirus pandemic, making them less favorable for borrowers, experts say.
The loans in question are granted through the Paycheck Protection Programwhich offers up to $10 million in forgivable loans to businesses with 500 or fewer employees.
The program, which officially opened to many borrowers on Friday morning, will distribute up to $349 billion to struggling small businesses to help cover costs such as payroll, rent and utilities. Loans are made through lenders approved by the Small Business Administration and other institutions.
In its initial guidance, the Treasury Department said banks would charge a fixed interest rate of 0.5% and the unforgiven portion of a loan could be repaid over 10 years.
However, the loans now carry a higher interest rate – 1% – and mature in a much shorter time – two years – than originally planned, according to the Treasury. guidelines released Thursday.
Banks were reluctant to offer loans on original terms and pressured federal officials to change them, says founder Roger DaSilva of Realm Startup Advisory, which acts as an outsourced CFO for small businesses.
Small businesses may qualify for forgiveness of all or part of their loan, for the portion used over an eight-week period to cover payroll costs (excluding salaries over $100,000), rent, utilities and mortgage interest.
The rollout of the scheme has been confusing and frustrating among borrowers and lenders, who received only key advice and a formal loan application by Thursday evening.
“I know there are a lot of hard-working small businesses who weren’t able to get their applications processed this week,” Treasury Secretary Steven Mnuchin said. “They shouldn’t care. There’s plenty of time. There’s plenty of money left over. This is a great opportunity for small businesses to make sure they keep everyone working and bring back to life. work the people they have made redundant.”
He added, “If we run out of money, we’re going to go back to Congress and get more money for small businesses.”
Applications opened for small businesses and sole proprietors on April 3. Independent contractors and freelancers can apply from April 10.