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SBA creates new SBLC category and ends moratorium
On April 12, the SBA published a final rule in the Federal Register lifting the moratorium on licensing new nondepository small business lending companies (SBLCs) and adding a new type of entity called a “Community Advantage SBLC.” The moratorium was imposed in 1982, after the agency determined it lacked adequate resources to effectively service and supervise additional SBLCs participating in SBA’s 7(a) loan program beyond the 14 it was authorized to approve. According to SBA, while the majority of 7(a) lenders are federally-regulated depository institutions, “SBLCs are regulated, supervised, and examined solely by SBA” and “are subject to specific regulations regarding formation, capitalization, and enforcement actions.” SBA explained that there are capital market gaps in certain markets that “continue to struggle to obtain financing on non-predatory terms.” The final rule lifts the licensing moratorium and eliminates the cap on the number of nondepository institutions in the program. The final rule also creates the Community Advantage SBLC to help bridge the financing gap that small businesses face in the private market. Community Advantage SBLCs are nonprofit organizations that will be licensed to make 7(a) loans to small businesses and will help SBA meet the needs of underserved communities. SBA also revised its regulations to remove the requirement for a separate loan authorization document to “eliminate the duplication of effort and opportunity for a mismatch of information between multiple sources of the loan terms and conditions.” The final rule is effective May 12.
HUD seeks public input on disaster recovery funds
On December 20, HUD released two new requests for information (RFIs) seeking public input on how to simplify, modernize, and more equitably distribute critical disaster recovery funds. According to HUD, the RFIs are a broader element of HUD’s newly published Climate Action Plan, “which emphasizes both equity and resilience in disaster recovery, as well as the Biden-Harris Administration’s commitment to strengthening low- and moderate-income communities.” HUD noted that the Community Development Block Grant Disaster Recovery and Mitigation focus on long-term recovery and resilience efforts, targeted to families with low- and moderate-incomes in the most impacted and distressed areas. HUD also noted that both funds are “unique” from other federal disaster assistance programs by FEMA and the SBA, as well as private insurance, because it is the only federal resource with the primary purpose of benefiting low- and moderate-income communities. HUD further noted that the RFIs will inform the policy that will tear down barriers and eliminate unnecessary administrative burden, as to provide better and quicker assistance to those affected.
SBA seeks to end SBLC moratorium
On November 7, SBA published a proposed rule in the Federal Register seeking to lift the moratorium on licensing new small business lending companies (SBLCs) and adding a new type of entity called a “Mission-Based SBLC.” The moratorium was imposed in 1982, after the agency lacked adequate resources to effectively service and supervise additional SBLCs participating in SBA’s 7(a) loan program beyond the 14 it was authorized to approve. According to SBA, while the majority of 7(a) lenders are federally-regulated depository institutions, “SBLCs are regulated, supervised, and examined solely by SBA” and “are subject to specific regulations regarding formation, capitalization, and enforcement actions.” SBA explained that there are capital market gaps in certain markets that “continue to struggle to obtain financing on non-predatory terms.” The proposed rule seeks to lift the licensing moratorium and further create the Mission-Based SBLC to help bridge the financing gap. Mission-Based SBLCs will be nonprofit entities that will help SBA meet the needs of underserved communities and increase opportunities for access to capital in precisely targeted capital market gaps. Comments on the proposed rule are due January 6, 2023.
Biden signs bills providing 10-year SOL on PPP and EIDL fraud
On August 5, President Biden signed the Paycheck Protection Program and Bank Fraud Enforcement Harmonization Act (see H.R. 7352) and the COVID-19 Economic Injury Disaster Loan Fraud Statute of Limitations Act (see H.R. 7334). H.R. 7352 provides a 10-year statute of limitations for fraud by borrowers under the SBA’s Paycheck Protection Program, while H.R. 7334 establishes a 10-year statute of limitations for fraud by borrowers under the SBA’s Covid-19 Economic Injury Disaster Loan programs.
SBA says larger nonprofits eligible for PPP loan forgiveness
On July 8, the SBA added question #71 to its Paycheck Protection Program (PPP) frequently asked questions clarifying whether 501(c)(3) nonprofit organizations with more than 500 employees are eligible for PPP loan forgiveness. SBA explained that while the CARES Act generally provided that “501(c)(3) nonprofit organizations with a total of 500 or fewer employees were eligible to receive a First Draw PPP Loan,” the American Rescue Plan Act (ARPA) later “increased the size eligibility standard for 501(c)(3) nonprofit organizations for First Draw PPP Loans from a total of 500 or fewer employees to no more than 500 employees per physical location of the 501(c)(3) nonprofit organization.” On March 22, 2021, SBA published an interim final rule (IFR) implementing recent PPP changes that were included in the ARPA enacted on March 11, 2021 (covered by InfoBytes here).
Exercising her broad authority under the PPP, and in light of litigation earlier this year, on July 8 the SBA administrator announced that “any 501(c)(3) nonprofit organization that received a loan before March 11, 2021, but submits a forgiveness application on or after March 11, 2021, will not be ineligible for forgiveness on the basis that they have more than 500 employees in multiple physical locations” provided it has otherwise complied with all applicable PPP rules.
SBA says nonprofit lenders are eligible for PPP loan forgiveness
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.
SBA offers additional deferment for Covid-19 EIDL loans
On March 15, SBA extended the deferment period for the Covid-19 Economic Injury Disaster Loan (EIDL) program, to provide a total of 30 months deferment from inception on all approved Covid EIDL loans. The extended deferment of principal and interest payments on existing EIDL loans approved in calendar years 2020, 2021, and 2022 is intended to provide additional flexibility for small business owners affected by Covid-19. While borrowers are not required to make payments during the deferment period, interest will continue to accrue on the loans during the deferment. SBA warned that deferments may result in balloon payments and will not stop any established preauthorized debit or recurring payments on a loan. Borrowers will need to contact their SBA servicing center to pause recurring payments during the extended deferment period. Once the deferment period ends, borrowers will be required to make regular principal and interest payments beginning 30 months from the date of the note.
DOJ announces $31,000 FCA settlement for duplicative PPP loans
On February 11, the DOJ announced a $31,000 settlement with an IT services company to resolve allegations that it violated the False Claims Act (FCA) by obtaining more than one Paycheck Protection Program (PPP) loan in 2020. According to the settlement agreement, in April 2020 the company received two SBA-guaranteed PPP loans through two different banks. The company agreed to repay the duplicative PPP loan in full to its lender, relieving the SBA of liability. The settlement press release also noted that the settlement with the company resolved a lawsuit filed under the whistleblower provision of the FCA, which permits private parties to file suit on behalf of the U.S. for false claims and share in a portion of the government’s recovery.
Borrowers may request SBA loan review of partially forgiven PPP loans
On January 27, SBA issued Procedural Notice 5000-827666 outlining a new process for borrowers to request an SBA loan review of partially approved forgiveness decisions by their Paycheck Protection Program (PPP) lenders. Effective immediately, when a PPP lender receives a forgiveness remittance from SBA on a partial approval decision (including instances when the lender required a borrower to apply for forgiveness in an amount less than the full amount of the loan), the lender must inform the borrower that the borrower has 30 calendar days from receipt of the notification to seek an SBA loan review of the lender’s partial approval decision. The lender must then notify SBA within 5 calendar days of receiving the borrower’s timely request for review. If SBA selects the loan for review, the borrower must continue to make payments on the remaining balance. Additionally, SBA noted that borrowers should be aware that the agency “may determine that the borrower is entitled to forgiveness in an amount less than what the [l]ender decided (including zero if, for example, the borrower is determined to be ineligible for the PPP loan), an amount more than what the [l]ender decided, or the same amount as the [l]ender decided.” The SBA notice outlined details related to forgiveness payment remittances resulting from a partial approval loan review, and noted that SBA will provide lenders additional guidance through the platform, including step-by-step instructions. The notice expires January 1, 2023.
SBA rolls out small business cybersecurity pilot program
On January 21, the SBA announced $3 million in funding for the agency’s Cybersecurity for Small Business Pilot Program. The funding is intended to help state governments assist emerging small businesses develop their cybersecurity infrastructures to combat increasing and evolving threats. Applications will be accepted from January 26 through March 3. “Throughout the COVID-19 pandemic, small businesses have adopted technology at high rates to survive, operate, and grow their businesses. As a result, cybersecurity has become increasingly important as now, more than ever before, small business owners face cyber risks and challenges that could disrupt their operations and competitive advantages. As we seek to build a stronger and more inclusive entrepreneurial ecosystem, we must innovate and provide resources to meet the evolving needs of the growing number of small businesses. With this new funding opportunity, the SBA intends on leveraging the strengths across our state governments, territories, and tribal governments to provide services to help small businesses get cyber ready and, in the process, fortify our nation’s supply chains,” SBA Administrator Isabella Casillas Guzman said in the announcement.