SBA Paycheck Protection Program (PPP)

What are the latest PPP Updates?

On Aug. 10, the U.S. Small Business Administration opened its Paycheck Protection Program (PPP) loan forgiveness application portal to allow lenders to begin submitting loan forgiveness applications, supporting documents, and requests for forgiveness payments. To address borrower and lender questions concerning forgiveness of PPP loans in the forgiveness process, on Aug. 4 the SBA issued Frequently Asked Questions on PPP Loan Forgiveness. SBA clarifies that borrowers and lenders may rely on the guidance as SBA’s interpretation of the The CARES Act (in consultation with the Treasury Department), as amended by the PPP Flexibility Act and the PPP Interim Final Rules.
 
The PPP closed to applications on Aug. 8 as directed by current law. Congress is considering several proposals for a revived PPP, including additional funding and second-draw loans for the hardest hit small businesses. The FAQs on PPP Loan Forgiveness can be found here. For information on SBA’s Procedures for Lender Submission of PPP Loan Forgiveness Decisions to SBA and SBA Forgiveness Loan Reviews, see Procedural Notice No. 5000-20038. For more information and updates, visit SBA.gov/PaycheckProtection or Treasury.gov/CARES.

What was the latest SBA issued Interim Final Rule?

On Aug. 24 the U.S. Small Business Administration issued the 24th Paycheck Protection Program interim final rule (IFR). The IFR — Treatment of Owners and Forgiveness of Certain Nonpayroll Costs — addresses the ownership percentage that triggers the applicability of owner compensation rules for forgiveness purposes. This IFR clarifies that owner-employees with less than a 5 percent ownership stake in a C- or S- Corporation are not subject to the owner-employee compensation rule when determining the amount of their compensation eligible for loan forgiveness because such owner-employees have no meaningful ability to influence decisions over how loan proceeds are allocated.

This IFR also explains that the amount of loan forgiveness requested for non-payroll costs may not include any amount attributable to the business operation of a tenant or sub-tenant of the PPP borrower or, for home-based businesses, household expenses.

Finally, the IFR states that rent or lease payments made to a related party can be eligible for loan forgiveness if: 1) the amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the covered period that is attributable to the space being rented by the business; and 2) the lease and the mortgage were entered into prior to Feb. 15, 2020. (Any ownership in common between the business and the property owner is considered a related party for these purposes. Note that mortgage interest payments to a related party are not eligible for forgiveness).

Was the Paycheck Protection Program Flexibility Act signed into law and if so what changes does it make to the PPP loan program?

Yes. On June 5, 2020 President Trump signed into law the Paycheck Protection Program Flexibility Act (PPP Flexibility Act) to provide small businesses more time and flexibility to use their PPP funds. The PPP Flexibility Act modifies certain Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provisions related to the forgiveness of PPP loans and allows PPP borrowers who receive loan forgiveness to defer payroll taxes.

Prior to enactment of the PPP Flexibility Act, a PPP borrower could apply for loan forgiveness for up to the amount of PPP loan proceeds expended on authorized uses during the 8-week period immediately following receipt of the loan. The PPP Flexibility Act extends this 8-week forgiveness period to 24 weeks after the date of disbursement of the PPP loan to the PPP borrower, but in no event ending later than December 31, 2020. These changes increase the likelihood that a large percentage of a PPP borrower’s loan amount will be forgiven.

The PPP Flexibility Act amends Section 1106 of the CARES Act to expand the covered period that a PPP borrower must spend PPP loan proceeds to be eligible for forgiveness from eight weeks to the earlier of 24 weeks after loan origination or Dec. 31, 2020. This will allow PPP borrowers a longer period to spend PPP loan proceeds and have them count towards forgivable costs. Before this change, a PPP borrower could apply for loan forgiveness for up to the amount of PPP loan proceeds spent on permissible costs during the 8-week period immediately following receipt of the loan.

A PPP borrower can still choose to spend all loan proceeds and request forgiveness prior to the end of its covered period. This might be helpful to PPP borrowers who are at the end of their original covered period and have spent most of their funds and prefer to seek forgiveness sooner rather than later.

The PPP Flexibility Act also amends the Small Business Act to extend the period for a potential borrower to apply for a PPP loan from June 30, 2020 to December 31, 2020. However, members of Congress have published a Letter of Congressional Intent stating that this extension of the covered period is not intended to permit SBA to continue to accept applications for PPP loans after June 30, 2020. Therefore, additional guidance to clarify this issue is likely.

The maturity for forgiveness of any portion of a remaining balance on a PPP loan disbursed on or after the date of enactment of the PPP Flexibility Act is extended from a two-year maturity date to at least a minimum of five years. For existing PPP loans, borrowers and lenders can mutually agree to a loan maturity date that is longer than the two years stated in the SBA regulations.

The PPP Flexibility Act reduces the amount a PPP borrower must spend on payroll costs to 60% from 75%, thereby allowing 40% of the PPP loan proceeds to be spent on non-payroll costs including covered mortgage interest, rent, or utilities. This means PPP borrowers can use more PPP funds on permitted expenses other than payroll costs. However, it is unclear whether a PPP borrower is now ineligible for any forgiveness if it fails to spend “at least 60% of the covered loan amount for payroll costs.” This potentially significant change requires further guidance.

Section 1106 of the CARES Act specifically requires certain reductions in a borrower’s loan forgiveness amount based on reductions in full-time equivalent (FTE) employees or in employee salary and wages during the covered period. The CARES Act included a safe harbor if the PPP borrower restored employment or salary and wages prior to June 30, 2020. The PPP Flexibility Act extends this safe harbor date from June 30, 2020, to December 31, 2020. So, if the FTE employees or the salary and wages are restored to February 15th levels any time prior to December 31, 2020, no reduction in forgiveness will be required.

In addition, the PPP Flexibility Act adds a new safe harbor to provide that a PPP borrower will not have a reduction in forgiveness amount due to a cutback in FTE employee count if the PPP borrower can document, in good faith:

  • An inability to rehire the same or similar employees that were in place as of February 15, 2020;
  • An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
  • An inability to return to the same level of business activity before February 15, 2020, due to COVID-related social distancing, sanitation, and other safety requirements or guidance from the Centers for Disease Control, Health and Human Services, or Occupational Safety and Health Administration issued between March 1, 2020, and December 31, 2020. This basically means that if the situation is such that on December 31, 2020, shops and restaurants and gyms, for example, cannot fully open due to government restrictions, any loss in FTE employees resulting from such restrictions should not be considered in calculating a required reduction in the loan forgiveness amount.

Finally, under the CARES Act, principal and interest payments on the amount of any PPP loan balance remaining after forgiveness was deferred for six months after the PPP loan funding date. The PPP Flexibility Act extends the deferral period to the time that the forgiveness amount is remitted by SBA to the lender. In addition, for a PPP borrower that does not ask for forgiveness within 10 months after the last day of the 24-week forgiveness period, the deferral period is ten months after the ending date of the forgiveness period.

The PPP Flexibility Act can be found here.

For more information on the Paycheck Protection Program, visit here.

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.

Is there a new easy PPP borrower loan forgiveness application?

Yes.  Small business owners now have two application options to pick from when they file to have their Coronavirus-relief loans forgiven. On June 16, 2020 the Treasury Department and U.S. Small Business Administration released two versions of the Paycheck Protection Program (PPP) forgiveness form, including a shorter simplified version (form 3508EZ) that requires fewer calculations and less documentation. The new EZ application applies to borrowers that are self-employed and have no employees; or did not reduce the salaries or wages of their employees by more than 25 percent, and did not reduce the number or hours of their employees; or experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25 percent. You can also access the revised PPP loan forgiveness application implementing the PPP Flexibility Act of 2020 signed into law on June 5 here. Both forms reflect congressional changes to the loan program, including an extended 24-week covered period.