Rulemaking sets interest rate at 1% and provides critical information to lenders and borrowers
Baton Rouge, La. (April 3, 2020) – The Paycheck Protection Program (PPP) application period opened today, just hours after the Small Business Administration released Interim Final Guidance for the Program, providing critical guidance to lenders and borrowers. Among the guidance was a change in the anticipated interest rate for PPP loans. Previous interim guidance set the loans at a fixed 0.5%; the interim final guidance sets the interest rate at 1%.
“The rate change could provide a little comfort to lenders and a little more hope to borrowers,” said Liz Smith, Senior Vice President for Economic Competitiveness at the Baton Rouge Area Chamber. “It remains to be seen whether area lenders agree that the interest rate bump makes the loans appealing. It’s critical that these loans are attractive to both lenders and borrowers to get these dollars actually paying paychecks.”
The rate change is still significantly lower than the 4% maximum provided for in the CARES Act. Lending entities have expressed concern that the low interest rate and waiver of standard financial eligibility minimums would create intolerable losses in offering PPP loans. The guidance positions the 1% interest rate as attractive relative to comparable maturities.
Also clarified in the guidance are definitions of eligible and ineligible entities and expenses, as well as terms, maturity date, and other key features of the loan. The guidance also outlines records and documentation that must be provided to establish eligibility.
Affiliation rules have not yet received full guidance, and this interim final document notes that the applicability of affiliation (or franchise) rules will be addressed with additional guidance soon.
The guidance encourages borrowers to seek the full available amount of the loan of $10 million, as it strictly notes that only one loan per borrower will be allowed. It notes that the PPP is “first-come, first-serve,” underlining BRAC’s earlier urging to small businesses to apply as soon as possible to avoid running up against the funding cap.
- The final application for borrowers may be found here.
- A non-exhaustive list of SBA-approved lenders in the Capital Region may be found here.
- Program overview information may be found here.
BRAC is continuing to review the updated guidance on the PPP, and will make that information available at brac.org/recovery. This page is being regularly updated to provide businesses with guidance and resources for recovery.
About the Baton Rouge Area Chamber
The Baton Rouge Area Chamber (BRAC) leads economic development in the nine-parish Baton Rouge Area, working to grow jobs and wealth and to improve the business climate and competitiveness in the region. Today, BRAC investors include more than 1,500 small businesses, mid-sized firms, large industry and entrepreneurial startups, as well as individuals and organizations that support business and economic development. In this capacity, BRAC serves as the voice of the business community, providing knowledge, access, services and advocacy. More information is available at brac.org.