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Financial Services Law Insights and Observations

SBA releases PPP guidance and expansion rules

Federal Issues Covid-19 SBA Federal Reserve CARES Act Federal Legislation Consolidated Appropriations Act Bank Regulatory

Federal Issues

On January 8, the Small Business Administration (SBA) announced the Paycheck Protection Program (PPP) will re-open the week of January 11, with only community financial institutions able to make “First Draw” PPP loans on Monday, January 11, and “Second Draw” PPP loans on Wednesday, January 13 (re-opening to all participating lenders “shortly thereafter”). The SBA also released two interim final rules and associated guidance relating to the relaunch of the PPP, as dictated by the Consolidated Appropriations Act, 2021 (HR133). The Act, which was signed by President Trump on December 27, extends certain emergency authorities and temporary regulatory relief contained in the CARES Act, including an extension of the eviction moratorium until January 31. Under a section titled, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), the legislation also provides an additional $284 billion for the PPP, extending the authority to make PPP loans through March 31, amending certain aspects of the program, and allowing for certain businesses to take second loans. The SBA notes that the new issuances satisfy the Economic Aid Act’s requirement that the agency promulgate rules to carry out the PPP provisions within 10 days of enactment:

  • SBA Guidance. The guidance covers access to capital for minority, underserved, veteran, and women-owned business concerns and details the set-asides for loans issued by community development financial institutions, minority depository institutions, and certain small depository institutions. Most notably, the guidance states that the SBA will only accept PPP loan applications from community financial institutions for at least the first two days when the PPP loan portal re-opens.
  • First Interim Final Rule. The interim final rule incorporates the Economic Aid Act’s amendments required to be implemented by regulation within 10 days of enactment. It also consolidates and restates SBA’s previous interim final rules and guidance covering the PPP (such as those governing borrower eligibility, lender eligibility, and PPP application and origination, and loan forgiveness). The interim final rule implements the various changes to the PPP made by the Economic Aid Act, including:
    • Allowing additional expenses and forgivable uses for PPP funds, including certain operational expenditures, certain costs related to property damage due to public disturbances that occurred during 2020, certain supplier costs, and certain protective equipment expenditures. The expanded forgivable expenses may be utilized by borrowers who obtained PPP loans before the enactment of the Act so long as they have not already had their loans forgiven.
    • Provisions stating that lenders (i) may rely on any certification or documentation submitted by applicants for both initial and second PPP loans, and (ii) may not be subject to enforcement action or penalties relating to loan origination or forgiveness, so long as (a) the lender acts in good faith relating to loan origination or forgiveness, and (b) all relevant federal, state, local and other statutory and regulatory requirements are satisfied.
    • Certain streamlined conditions for loans of up to $150,000, including simplified loan forgiveness application and simplified certification of revenue for second loans.
  • Second Interim Final Rule- PPP Second Draw. The interim final rule implements the key provisions of section 311 of the Economic Aid Act, allowing for a second PPP draw. Specifically, the Economic Aid Act allows for certain businesses to take a second loan under the PPP with a maximum draw amount of $2 million. In order to qualify, businesses must generally: (i) employ no more than 300 employees; (ii) have used or will use the full amount of their first PPP loan; and (iii) demonstrate at least a 25 percent reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same quarter in 2019.  Applications submitted after January 1, 2021 can utilize gross receipts from the fourth quarter of 2020. Additionally, the Economic Aid Act includes restrictions on types of eligible businesses, including entities involved in political and lobbying activities. Qualified borrowers may receive a loan amount of up to 2.5X the average monthly payroll costs during the 1-year period prior to the date of the loan or in calendar year 2019.

Additionally, in response to the Consolidated Appropriations Act, the Federal Reserve Board extended the termination date of the Main Street Lending Program facilities to January 8, in order to allow more time to process and fund loans that were submitted to the portal on or before December 14, 2020. The SBA also extended the deadline to apply for the Economic Injury Disaster Loan (EIDL) program to December 31, pending the availability of funds.

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