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Financial Services Law Insights and Observations

SBA says nonprofit lenders are eligible for PPP loan forgiveness

Federal Issues SBA CARES Act Covid-19

Federal Issues

On May 5, the SBA added question #70 to its Paycheck Protection Program (PPP) frequently asked questions explaining that 501(c)(3) nonprofit lenders are eligible for PPP loan forgiveness provided they have complied with all applicable PPP rules aside from 13 CFR 120.110(b). 13 CFR 120.110(b) provides that non-profit businesses and other financial businesses that are “primarily engaged in the business of lending” are ineligible for SBA business loans. While the CARES Act specifically allowed nonprofit organizations to be eligible for PPP loans, it did not mention financial businesses/lenders, which SBA interpreted as “allowing nonprofits to overcome the 13 CFR 120.110 restriction, but not lenders.” Following a review of the agency’s PPP loan records, SBA found that 501(c)(3) nonprofit lenders were confused as to whether they were eligible for PPP loans. In order to provide clarity, SBA “determined that 501(c)(3) nonprofit lender borrowers reasonably relied on the CARES Act’s nonprofit authority regarding their eligibility for a PPP loan. In addition, enforcing the Forgiveness and Loan Review IFR (86 FR 8283) that provides for denial of forgiveness to 501(c)(3) nonprofit lenders due to application of the PPP eligibility rule incorporating 13 CFR 120.110(b) will negatively affect the remaining small number of 501(c)(3) nonprofit lenders that have not yet received forgiveness.” As such, the SBA administrator has elected to exercise broad discretion “to decline to enforce the Forgiveness and Loan Review IFR rule providing for denial of forgiveness to ineligible borrowers for 501(c)(3) nonprofit lenders” and will allow such lenders to be eligible for forgiveness of their PPP loans.