SBA Paycheck Protection Program (PPP)

Did SBA issue new rules on PPP Loan Forgiveness and SBA Loan Review Procedures?

Yes. On Friday evening, May 22, 2020 the Small Business Administration (SBA) and the U.S. Department of the Treasury (Treasury) issued two interim final rules providing guidance to help PPP borrowers prepare and submit loan forgiveness applications as provided for in Section 1106 of the CARES Act, help PPP participating lenders who will be making the loan forgiveness decisions, and inform borrowers and lenders of SBA's process for reviewing PPP loan applications and PPP loan forgiveness applications.

The first of the interim final rules outlines the general loan forgiveness process for applications that are not reviewed by SBA prior to the participating lender's decision on the forgiveness application. This interim final rule expands upon the Loan Forgiveness Application and Instructions issued by SBA on May 15, 2020. The second of the interim final rules, which was released contemporaneously, outlines the procedures SBA will use when reviewing a PPP loan for loan forgiveness as well as the borrower and lender obligations associated with those procedures.

In issuing these two interim final rules, SBA is providing loan forgiveness certainty to participating lenders to provide them with enough time to develop their systems and policies and procedures to timely review and process loan forgiveness applications, which borrowers can submit at the end of their covered period. This guidance also provides a high degree of certainty to PPP borrowers to enable them to take immediate steps to maximize their loan forgiveness amounts, for example, by either rehiring employees or not laying off employees during the covered period.

To receive loan forgiveness, a borrower must submit to their participating lender (or the lender servicing the PPP loan) the completed PPP Loan Forgiveness Application and certain required documentation. The participating lender reviews the application and documentation and has 60 days from receipt of the complete application to issue to SBA its decision regarding loan forgiveness and request payment from SBA for the amount determined to be eligible for forgiveness.

SBA will remit the appropriate forgiveness amount to the participating lender, including interest accrued through the date of payment, no later than 90 days after the participating lender issues its loan forgiveness decision to SBA. The borrower must repay any remaining balance on the loan that is not forgiven on or before the two-year maturity of the loan.

The second of the two interim final rules provides guidance on the discrete issues related to SBA's process for review of PPP loan applications and loan forgiveness applications. SBA may review a PPP loan of any size at any time in SBA's discretion. SBA may review the borrower's representations and statements regarding borrower eligibility as determined by the information, certifications, and representations on the borrower application form (SBA Form 2483) and Loan Forgiveness Application (SBA Form 3508). SBA may review whether a borrower calculated the loan amount correctly and used loan proceeds for the allowable uses. SBA may also review whether a borrower is entitled to loan forgiveness in the amount claimed on the borrower's Loan Forgiveness Application.

If SBA reviews a loan and determines the borrower was ineligible for a PPP loan, the lender is not eligible for a processing fee. For any SBA-reviewed PPP loan, if within one year after the loan was disbursed SBA determines that a borrower was ineligible for a PPP, SBA will seek repayment of the lender processing fee from the lender. However, SBA's determination of borrower eligibility will have no effect on SBA's guaranty of the loan if the lender has complied with its obligations.

If a lender fails to satisfy the requirements applicable to lenders that are set forth in the First Interim Final Rule or the document collection and retention requirements described in the lender application form 2484, SBA will seek repayment of the lender processing fee from the lender and may determine that the loan is not eligible for a guaranty.

Has the SBA issued information on reporting PPP loans, Form 1502, and collecting the processing fee?

Yes. On May 21, 2020 the Small Business Administration released procedures to inform Paycheck Protection Program (PPP) lenders of the reporting process through which PPP lenders will report on PPP loans and collect the processing fee on fully disbursed loans which they are eligible to receive. Included in the procedures is information on SBA Form 1502, which lenders will use to report fully disbursed loans to the SBA. SBA will begin accepting 1502 reports on fully disbursed or cancelled PPP loans on May 22.

Detailed information on how to process these loans is available from the SBA. See SBA Procedural Notice. For further updates, visit SBA.gov/PaycheckProtection or Treasury.gov/CARES.

What Paycheck Protection Program (PPP) resources are available?

Has the CFPB issued any clarification regarding Regulation B and Adverse Action notice requirements?

Yes. The Consumer Financial Protection Bureau (CFPB) has issued clarifying FAQs to support small businesses who have applied for a loan from their financial institution under the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). In its FAQs, the CFPB clarifies that a PPP application is only a “completed application” once the creditor has received a loan number from the SBA or a response about the availability of funds. This ensures that the time awaiting this information from the SBA does not count towards the 30-day notice requirement, and that applications will therefore not “time out” during the process. The FAQs also make clear that if the creditor denies an application without ever sending the application to the SBA, the creditor must give notice of this adverse action within 30 days. It further clarifies that a creditor cannot deny a loan application based on incompleteness where the creditor has enough information for a credit decision but has yet to receive a loan number or response about the availability of funds from the SBA.

Can you provide a summary of NCUA’s Letter to Credit Unions CU 20-CU-11 regarding Regulatory Treatment for PPP loans?

NCUA's Letter to Credit Unions CU 20-CU-11 covers changes to its regulations as a result of the recent interim final rule on the PPP program and the Federal Reserve System PPP Lending Facility and includes:

  1. 702.104 was amended to include PPP loans as a low risk asset for purposes of calculating a credit union's risk-based net worth ratio. PPP loans receive a zero percent risk weight.
  2. PPP loans are excluded from the commercial loan definition in §2. With this provision, PPP loans are, therefore, not subject to the enhanced underwriting and monitoring requirements for commercial loans.
  3. As PPP loans are fully guaranteed by a federal agency, they should not be included in a credit union's net MBL calculation for purposes of determining compliance with the statutory MBL limit.
  4. If a credit union chooses to make a PPP loan to a business of an official of the credit union it must comply with NCUA regulations so that rates and terms are not more favorable than those offered to other credit union members [see §21(d)(5) for federal credit unions and §741.203 for federally insured state chartered credit unions]. Also, any loan to a credit union official that in aggregate, exceeds $20,000 must be approved by the credit union's board of directors.
  5. PPP loans to non-members? Don't do it – UNLESS the borrower of the PPP loan becomes a member by the time the loan closes.
  6. Under §2, the calculation of a credit union's net worth ratio neutralizes the capital effects of PPP loans pledged to the Federal Reserve PPP Lending Facility. Unpledged PPP loans will still be included in the credit union's total assets for purposes of calculating the net worth ratio, but all PPP loans will continue to receive a zero percent risk weight for risk based net worth purposes.
  7. Future call report instructions will include guidance on how to categorize PPP loans and advances obtained through Fed's PPPLF.

Is there any SBA guidance for employers and lenders on how to calculate maximum, loan amounts for PPP loans?

Yes. SBA issued PPP guidance on April 24, 2020 that provides information on how to calculate maximum loan amounts by business type. Click here for the guidance.

What is an Incumbency Certificate and is it required to be included with the Lender Agreement SBA Form 3506 when applying to become an SBA PPP program lender?

An Incumbency Certificate is an official document that identifies and authorizes certain named individuals to execute binding agreements on behalf of the corporation/organization. Per Lender Agreement SBA Form 3506 an Incumbency Certificate must accompany the agreement when applying to become an approved PPP program lender.

Has the SBA conducted any outreach to lenders?

On April 7, 2020,  the U.S. SBA hosted a conference call regarding PPP loans, providing valuable information and updates. Click here for a few key takeaways.

What information is available regarding the Paycheck Protection Program?

The U.S. Treasury Department and the SBA released their Interim Final Rule for the PPP on April 2, 2020, as part of the CARES Act.

Please refer to CUNA's guidance on the SBA’s Paycheck Protection Program.

Federally insured credit unions are eligible to participate in the program and issue PPP loans if they are an SBA-approved lender. Please review the Treasury’s lending information sheet for all federally insured depository institutions. Credit unions that are not currently an SBA-approved lender can apply for PPP authority by submitting the Lender Agreement to: DelegatedAuthority@sba.gov

The SBA has also issued a borrower information sheet, which you may find informative.

The Treasury and SBA will continue to update guidance as the program comes online. The Leagues will provide updates as we receive them. Visit SBA.gov/Coronavirus for more information on SBA’s assistance to small businesses and the Paycheck Protection Plan.

What is the Federal Reserve’s Paycheck Protection Program Lending Facility?

All depository institutions that originate PPP Loans are eligible to borrow under the Fed’s Paycheck Protection Program Lending Facility (PPPLF). Eligible borrowers participate in the Facility through the Reserve Bank in whose District the eligible borrower is located. Only PPP Loans guaranteed by the SBA are eligible to serve as collateral for this Facility. For more information, see the PPPLF Term Sheet and the additional resources available here

How do PPP loans affect regulatory capital?

On April 17, 2020, the Leagues sent a letter to NCUA Chairman Hood requesting guidance on the capital treatment of Paycheck Protection Program (PPP) loans. We asked the NCUA clarify the impact of PPP loans on credit unions’ risk-based net worth calculations. In addition, we asked that credit unions, like banks, be able to exclude from regulatory capital PPP loans pledged as collateral to the Fed’s PPP Lending Facility.

Can you provide sample website messaging that describes Paycheck Protection Program for Small Business Owners?

Click here for sample website messaging.

Can you provide sample text if my credit union is not participating in the SBA Paycheck Protection Program?

Click here for sample website messaging you may use.

Are privately insured credit unions able to participate in PPP?

Please click here for answers to this question and others for privately insured credit unions from American Share Insurance (ASI) President/CEO Dennis Adams (March 30, 2020).

Please see Lender Agreement – Form 3507 for privately insured credit unions to apply to be a PPP lender.