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While the new $350 billion Paycheck Protection Program is aimed at businesses with 500 or fewer employees, language in the $2 trillion federal stimulus bill allows big restaurant and hotel chains to participate regardless of how many people they employ, the Wall Street Journal reported. Sean Kennedy, executive vice president for the National Restaurant Association, which lobbied for the restaurant-and-hotel exception, says that size shouldn’t matter. “The restaurant industry is uniquely affected by this pandemic,” he said. “It was the first industry shut down. We think we deserve a unique response from the federal government.” But John Lettieri, president of the Economic Innovation Group, a Washington, D.C., think tank, says big companies should rely more on their own resources or other federal stimulus programs. The small-business-loan program is “the only lifeline we’re offering to these classes of businesses,” he said. “It stretches the intent of statute beyond recognition to apply it to national entities.” Some smaller franchisees worry that the big firms could elbow them out for loans if the fund gets depleted. Trump administration officials have said that they would seek additional funding if the money runs out. Congressional support is likely, said an aide to Sen. Marco Rubio, the Florida Republican who chairs the Senate Committee on Small Business and Entrepreneurship. The loans are made by banks, credit unions and other lenders and have a 1% interest rate. They are designed to keep employees on the payrolls for eight weeks. If a borrower doesn’t lay off workers, the government plans to forgive the loan, including interest. Borrowers may also use the money for rent and utilities. The maximum loan is $10 million. In addition to the exemption for hotel and restaurant chains, a second exemption was granted for franchise owners in any line of business who employ more than 500 people, as long as no single outlet employs that many.

Family-owned restaurants fear they could be pitted against larger competitors, hotel chains and potentially investment funds in a race starting today for a $349 billion pot of money the U.S. government will offer businesses hard-hit by coronavirus, Reuters reported. Enacted into law last week as part of a $2.3 trillion economic stimulus triggered by the outbreak, the program aims to keep small businesses on life support for at least the next two months. The term “small business,” however, took on a new meaning when a 56-word provision was inserted into the 148,124-word bill that raced through Congress. For certain small business loan purposes, the term typically refers to companies that employ fewer than 500 workers. But Congress and the Trump administration agreed to include large hotel and restaurant chains, as long as they employed fewer than 500 workers in a given location. Now, private-equity firms, venture capital funds and other large investors are also angling for a piece of the action. Some smaller restaurants worry they could be shouldered aside by well-connected corporate operations. 

Top U.S. banks have threatened to give the federal government’s small-business rescue program a miss on concerns about taking on too much financial and legal risk, five people with direct knowledge of industry discussions told Reuters. Seeking to help millions of small businesses whose operations have either shut down or have been dramatically curtailed by the coronavirus pandemic, Congress last week passed a $2 trillion stimulus package that includes $349 billion aimed at small firms. Borrowers can apply for the loans through participating banks starting from Friday and until June 30. Trump administration officials have said that they want the loans disbursed within days. But representatives of some big lenders, in an industry conference call yesterday, expressed serious reservations about participating in the scheme in its current form. Their main concern is that the Treasury Department has said it expects lenders to verify borrower eligibility, and take steps to prevent fraud, money laundering and protect customer information under the Bank Secrecy Act, sources said. Banks are worried they could face regulatory penalties or legal costs down the line if things go awry in the haste to get money out the door, or get blamed for not moving funds fast enough if they perform due diligence the way they would in ordinary times. After hearing the concerns, Treasury officials are considering withdrawing guidance that instructed lenders to verify borrowers had the specified number of employees on their books, and that their other costs are legitimate.

The economic peril from the coronavirus is growing more stark every day, and the $2 trillion stimulus may not deliver a rescue in time for the many small businesses and families who lack the cash to stay afloat for more than a week or two, Bloomberg News reported. Many businesses shut their doors either for a lack of customers or on orders from state or local governments as emergency declarations began rolling across the country in mid-March,. Yet it could be weeks more before the business loans, bigger unemployment checks and direct payments to individuals from the stimulus plan flow into the economy. A new Brookings report estimates that at least 48 million Americans will have to wait weeks or months longer than others for their stimulus checks because they didn’t provide the government with direct-deposit account numbers. That prospect “given the economic tsunami of COVID will be devastating,” according to the report’s author, Aaron Klein.

Troubled companies behind on their bills or already in bankruptcy may be out of luck when it comes to getting federal funds from the U.S. stimulus package, Bloomberg News reported. Current law blocks the government from making loans to companies that have either filed for chapter 11 bankruptcy or fail an insolvency test, according to lawyers who’ve studied the new legislation. In that scenario, it would be nearly impossible for such borrowers to access financing from the Federal Reserve. Some businesses angling for government relief “may discover a rude awakening” if those standards still apply to the new Coronavirus Aid, Relief and Economic Security Act, said Vincent Indelicato, a partner specializing in restructuring and bankruptcy law at Proskauer Rose. “This bill may not be the economic life preserver companies and their lenders were hoping for.” The size of the $2 trillion stimulus is unprecedented, surpassing the approximately $800 billion package that passed after the 2008 financial crash. The coronavirus plan provides about $500 billion in loans and assistance for big companies, provided they retain most of their employees and don’t buy back stock. Airlines are eligible for grants in exchange for giving the government equity stakes. There is a separate pool of about $350 billion for small business loans, which won’t have to be paid back if used for staff compensation, mortgage interest and rent. But the Federal Reserve doesn’t typically lend to insolvent borrowers — those who have trouble meeting their financial obligations or paying down debt when it comes due. Restrictions were put in place in 2015 after some companies bailed out under previous rescue packages wound up stiffing the federal government. In 2009, for example, middle-market lender CIT Group Inc. filed bankruptcy less than a year after getting billions in federal aid, wiping out the preferred stock sold to the U.S. Treasury.

In a single week in March, as financial markets convulsed and major parts of the economy began shutting down, banks made over $240 billion in new loans to companies — twice as much in new lending as they would ordinarily extend in a full year, the New York Times reported. American companies are reeling from the body blow dealt by the pandemic. As revenues dwindle, travel slows and production lines halt, companies have begun to furlough or lay off employees, slash investment in operations and buy less from their suppliers. With no way to tell when the economy will restart, they are racing to conserve money and tap as much credit as possible. The new reality, say bankers and analysts, will be tough for companies that had grown accustomed to the easy money of the past decade. Enticed by ultralow interest rates, they borrowed trillions of dollars in new debt in the belief that banks would keep lending and the debt markets would always be open. Now many indebted companies, even those whose business has not taken a direct hit from the outbreak, are finding that they have to adapt to an era in which cash is suddenly much harder to raise. Consumers “are not spending money on a long list of things,” said Susie Scher, co-head of the financing group at Goldman Sachs. “If you sell or service that long list of things, if you had a weaker balance sheet to begin with, you’re going to find yourself in a deteriorating liquidity position as the economic crisis goes on,” she said, referring to a position from which obtaining cash is difficult.

Borrowers will be charged just 0.5 percent interest in the new federally funded loan program to help keep small businesses afloat, and the loans will be forgiven as long as they keep their employees on their payrolls for two months, the Wall Street Journal reported. Under the Small Business Administration’s Paycheck Protection Program, lenders would make available as much as $350 billion in government-guaranteed loans to cover eight weeks of payroll and other expenses. Business owners can begin applying on Friday, followed by independent contractors and people who self-employed on April 10. The government says it will forgive the loans if they keep their workforce largely intact and use the loans for eligible expenses such as rent and utilities. The Trump administration is anticipating that the nation’s vast network of federally insured banks, credit union and farm credit system institutions will handle the loans, senior administration officials said Tuesday. Most of the applications are likely to be filed online, they said, and the money could be dispensed in as little as one day.

Treasury Secretary Steven Mnuchin said he expects details will be released soon on how small businesses disrupted by the coronavirus pandemic can tap a new loan program Congress passed last week, the Wall Street Journal reported. The roughly $2 trillion economic relief package President Trump signed into law on Friday includes nearly $350 billion in loans for companies with fewer than 500 employees, which will be administered by the Small Business Administration. Mnuchin said in an interview with Fox Business Network that he expected the loans to be available starting Friday, “which will be at lightning speed.” He said the Treasury Department that hoped to release documents and instructions soon on how businesses can apply for the funds. Small-business owners can go to any of the existing SBA lenders, as well as any FDIC-insured institution, credit union or financial-technology lender that has signed up for the program, he said.