The Bank of New York Mellon Corporation, or more commonly known as the BNY Mellon, Is an investment bank with its headquarters in New York City. The bank was founded in 2007 due to a merger between Mellon Financial and the Bank of New York.
The Bank of New York Mellon also offers small business loans that are of great help for businesses that are new or small in size. In addition, the bank offers Paycheck Protection Plans (PPP) loans, and below, we have discussed those loans thoroughly.
Paycheck Protection Program (PPP)
On 27 December 2020, a stimulus was passed by Congress to aid businesses. As a result, PPP loan applications were available till 31 March 2021, and all types of borrowers were also eligible for the loan.
The PPP loan is the component of CARES and the SBA administers them. The sole purpose of the loan is to keep the staff of small businesses employed during this raging pandemic.
Under the PPP loan program, the amount of the loan is 2.5 times higher than the trailing twelve-month monthly average payroll costs of ten million dollars.
Loans are only considered forgivable if the businesses/borrowers meet the retention criteria and have used the funds for payroll costs, expenses, and mortgage costs, during the 8 to 24 week disbursement period. In that case, the loan interest rate will be 1%. Some PPP loans mature in two years while others mature in five years, and they require no personal guarantee and collateral.
Interim Guidance and Revision
Since the loan was announced, several guidelines, interim laws, and rules have been published to clarify the loan program. As a result, the application process for the loan was streamlined, the certificate for liability was explained, and borrower/businesses that were eligible were defined and recognized.
Round 1: Result
The initial PPP loan bill was authorized for 349 billion dollars; the loan program started in April 2020 but depleted in just two weeks. Later in the month, Congress announced a loan amount of 310 billion dollars, taking the total loan amount to 659 billion dollars. The deadline for loan application was initially 30 June 2020 but was extended to 8 August 2020. On 8th August last year, the program came to an end.
PPP Loan Program Round 2
On 21 December 2020, Congress announced a PPP loan of 284 billion dollars and changed the original PPP program.
Expansion of eligibility and benefits
The new changes were targeted towards the hardest-hit sectors, such as the accommodation sector (hotels, restaurants), were eligible for a loan that was 3.5 times their monthly payroll. In addition, round 2 of the PPP Loan program also recognized additional borrowers:
- Chamber of commerce
- Association of traders
- Business leagues
Revision of Loan Forgiveness Criteria
In Round 2 of the PPP loan program, the criteria for forgiveness was also revised. Under the new changes, the businesses/borrowers were to spend 60 % instead of 75 % of the loan on their business needs (payroll expenses, mortgage costs, rent).
Types of Loans offered by Bank of New York Mellon
1. Paycheck Protection Program
On 27 December 2020, Congress passed a stimulus to assist small businesses during the COVID-19 pandemic. As a result, PPP loan applications are available till 31 March 2021, and previous borrowers are also eligible for the loan.
2. Commercial Real Estate Loans
Commercial real estate loans are made to help businesses or borrowers renovate properties, buy commercial properties, or refinance the debt on a property already owned by the borrower or the business.
3. Secured Lending
Secured lending is when the owner of a business is required to submit collateral against the loan. If the business owner cannot pay the loan, the bank/lender will pay off the collateral.
4. Aircraft Financing
The basic structure of aircraft financing is the lender approving a loan for an airline company to buy an aircraft from a seller or a manufacturer. The loan can be approved by submitting a security interest or a mortgage.
Bank of New York Mellon Interests, Fees, and Loan Options
No details regarding the loans, such as interest rates and fees, have been provided by BNY Mellon; however, we will still discuss the general rates and fees charged for these loans.
1. Paycheck Protection Program
- Interest Rates: 0 % if the loan is forgiven, 1 % if the loan is not forgiven (as of August 2021)
- Fees: None
2. Commercial Real Estate Loan
- Interest Rates: 1.99 % for the first six months (average)
- Fees: Unknown
3. Secured Lending
- Interest Rates: Could vary from 3 % to 36 %
- Fees: Amount unknown, usually added to the loan or paid upfront
4. Aircraft Financing
- Interest Rates: Experimental (5.75 % - 6.80 %), Kits (7.25 % - 7.50 %) and Light sport (5.25 % - 6.15 %)
- Fees: Down payment of 15 % on Experimental, 20 % on Kits and Light sport.
What Lending Criteria does Bank of New York Mellon Have?
Below is the basic lending criteria that all the banks follow:
- Credit Score
- Annual Revenue
- Business Plan
- Time in Business
Credit is the most important component of all types of businesses, whether they are small or large. Lenders will always analyze the business's credit score and then decide whether it can pay the loan or not. Therefore, the best way to maintain a healthy credit score is to pay your dues on time.
Credit scores can also be easily obtained from several agencies such as Equifax, Dun & Bradstreet, and Experian. Another way of maintaining a positive credit score is to have a low debt-to-income ratio. Lenders will not invest in businesses that don't have a good credit score.
Another important factor that the lenders will review is the annual revenue of the business. Most lenders will only lend to those businesses that have been profitable for the last two years or more. Businesses need to make sure that all the financial statements are accurate and up to date.
Lenders will also look at specific details such as the current account (current assets divided by liabilities) and ask for copies of bank statements and transactions. However, businesses will only be eligible for a loan if their cash flow is growing.
A minority of lenders might not ask for a business plan, but most of them do, and businesses need to come with a clear and concise proposal. Usually, lenders require the business plan to know the purpose of the loan and discuss the business's stability.
One of the main components of business plans is the resumes of managers and staff. However, despite having a clear business proposal, the lenders will still ask for proof of the staff's ability and relevant credentials and experience.
Collateral is an essential requirement, and most lenders will not provide a business loan if it cannot give collateral. Collateral can be anything like equipment or property. The collateral will also decrease the risk for the lender as it will have an asset in hand, so if the company fails to pay the loan, the collateral can be paid to fund the damages.
The owner of the company needs to provide a personal guarantee and will also need to submit some essential documents:
- Driver’s license
- Business license
- Tax returns (personal)
- Tax returns (business)
- Insurance plans of business
- Records for payroll
- Detail of owner
- Other financial obligations
Time in Business
Most banks are hesitant to lend loans to new companies that have been active for just a few months. Lenders cannot trust small businesses or startups that have just entered the market because they don't have a proper credit score and the cash flow is usually unstable. Banks will most likely lend to businesses that have been active for more than two years.
Eligibility Criteria for Paycheck Protection Program
Following borrowers qualify for loan forgiveness during the 8 to 24 period of loan disbursement:
- Compensation and employee levels are maintained
- 60 % of the funds are business expenses such as payroll costs
Bank of New York Mellon Application
Following is the application procedure of all the banks that borrowers have to follow:
Before you apply for a loan, ensure that all your documentation is up to date. Also, organize all the documents properly, and if some essential documents are missing, contact the relevant authorities. Collect all the financial information about your business and pay all the dues as soon as possible.
- Personal and Business credit scores and history
- Account statements of the business
- IRS documents, tax returns of the business, and the owner as well.
- Other important financial documents such as unpaid invoices, credit card details, and accounts receivable.
- Legal contracts (leasing, franchising, incorporation)
Note: The Paycheck Protection Program ended on 31 May 2021; current borrowers are only eligible for loan forgiveness.
For more information, log onto the website of BNY Mellon; click here.
Summary of Bank of New York Mellon Loan Options
In this article, we identified four types of loans offered by the Bank of New York Mellon, those were:
- Paycheck Protection Program (PPP)
- Commercial Real Estate Loan
- Secured Lending
- Aircraft Financing
The BNY Mellon is the oldest private bank in the U.S. and has extensive experience in lending and credit. The bank makes customized and effective strategies for the borrowers and thoroughly studies the assets and liabilities of the business. The bank also guides the businesses with long-term planning.