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SBA again revises PPP rules on felony convictions
On June 26, the SBA made effective an interim final rule, which revises, for the second time, the eligibility requirements for the Paycheck Protection Program (PPP) related to felony convictions of applicants or owners of applicants. As previously covered by InfoBytes, on June 12, the SBA reduced the look-back period from five years to one year for any felony conviction that does not involve fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance of any owner of 20 percent or more of the equity in the applicant. The new interim final rule specifies two additional modifications that would render an applicant ineligible for a PPP loan: (i) if a 20 percent owner is presently subject to pending criminal charges for felony offenses (as opposed to any formal criminal charges); and (ii) if a 20 percent owner is on probation or parole that commenced within the one- or five-year time frames, as applicable, for the convictions outlined above.
SBA updates PPP FAQs
On June 25, the Small Business Administration (SBA) updated the Paycheck Protection Program (PPP) FAQs to include new details about the maturity dates of the PPP loans. Specifically, the FAQs note that if a PPP loan received an SBA loan number on or after June 5, the loan has a five-year maturity. Any loan that received an SBA loan number prior to June 5 has a two-year maturity, unless the borrower and lender agree to extend the term to five years. Additionally, the SBA updated two additional questions to reflect changes made by the Paycheck Protection Program Flexibility Act of 2020 (the Flexibility Act), previously covered by InfoBytes here. First, the Flexibility Act extended the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks. The FAQs note that the 24-week period applies to all borrowers, but any borrower that received an SBA loan number prior to June 5, may still use the eight-week period. Finally, the FAQs now reflect the new felony conviction standards of PPP eligibility. On June 12, the SBA reduced the look-back period from five years to one year for any felony conviction that does not involve fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance of any owner of 20 percent or more of the equity in the applicant (covered by InfoBytes here).
FTC and SBA warn companies about misleading SBA loan marketing
On June 24, the FTC and the Small Business Administration (SBA) sent warning letters to six companies that they may be misleading small businesses seeking SBA loans due to the Covid-19 pandemic. The press release highlights specific claims from each company that the letters assert “could lead consumers to believe the companies are affiliated with the SBA,” or that consumers could use their websites to apply for loans from the Paycheck Protection Program (PPP) or other programs authorized by the CARES Act. These cited claims include, among others, (i) offering “'COVID-19 SBA Loan Programs”; (ii) offering “SBA Lending experts” and “SBA Loan Officers”; and (iii) stating “Get matched with a PPP lender now!” The letters warn the recipients to remove all deceptive claims and advertisements and remediate any harm to small business consumers that may have been caused. The letters further instruct the companies to notify the FTC within 48 hours of the actions they take in response. Copies of all six warning letters are available via links in the press release.
Illinois regulator releases recordings of PPP Loan Forgiveness Application webinars
On June 23, the Illinois Department of Financial and Professional Regulation announced that recordings of webinars offered to lenders and businesses on June 18 concerning the federal Paycheck Protection Program Loan Forgiveness Application are available online.
FDIC and OCC mitigate Covid-19 assessment effects
On June 22, the FDIC and the OCC released separate rules aimed at mitigating the assessment effects of participation in Covid-19 programs. Specifically, the FDIC issued a final rule to limit the deposit insurance effects of participation in the Paycheck Protection Program (PPP), the Paycheck Protection Program Liquidity Facility (PPPLF), and Money Market Mutual Fund Liquidity Facility (MMLF). Among other things, the final rule (i) removes the effect of PPP lending and borrowings under the PPPLF in calculating risk measures for an insured depository institution’s assessment rate; (ii) provides an offset to the total assessment amount for the increase in assessment base due to participation in the PPP and MMLF; and (iii) removes the effect of PPP and MMLF participation when classifying institutions as small, large, or highly complex for assessment purposes. The final rule is applicable as of April 1.
Under the OCC’s interim final rule (see also Bulletin 2020-63), the assessments due on September 30 for covered banks will be based on the December 31, 2019 Call Report for each institution, rather than the June 30 Call Report, in order to lower the assessments for supervised banks. However, if an institution’s June 30 Call Report is lower than the December 31, 2019 report, the OCC will use the lower of the two options. The interim final rule expires after the September 30 assessment collection.
SBA will release names of most PPP borrowers
On June 19, the Small Business Administration (SBA), in conjunction with the Treasury Department, announced that it will release the business information of certain Paycheck Protection Program (PPP) loan recipients. The SBA responded to bipartisan requests from the leaders of the U.S. Senate Small Business Committee and agreed to release the business names, addresses, NAICS codes, zip codes, business type, demographic data, non-profit information, jobs supported, and the loan amounts in general ranges for borrowers receiving loans between $150,000 and the maximum of $10 million. The SBA notes this accounts for nearly 75 percent of the program’s loans. For loans under $150,000, the SBA will release more generalized information about the recipients.
SBA’s Lender Match connects small businesses to small asset lenders
On June 19, the Small Business Administration (SBA) released a dedicated online tool that will match small businesses and non-profits impacted by the Covid-19 pandemic with Community Development Financial Institutions (CDFIs), Minority Depository Institutions, Certified Development Companies, Farm Credit System lenders, Microlenders, and traditional smaller-asset size lenders participating in the Paycheck Protection Program (PPP). Lender Match, which was paused due to CARES Act implementation priorities and loan volume, is being reinstated as an additional resource for small businesses that have not applied for or received approval for a PPP loan. Leads will only be forwarded to CDFIs and lenders with less than $10 billion in assets until the PPP program ends on June 30, 2020, at which point Lender Match will open to all participating SBA lenders. Applicants that are matched with lenders through the tool will receive an email within in two business days, which will allow them to immediately begin the application process for PPP loans and other SBA lending products. SBA notes, however, that Economic Injury Disaster Loan (EIDL) applications will not be accepted through Lender Match. Qualified small businesses and agricultural businesses must apply for EIDLs through a recently reopened portal (covered by InfoBytes here).
SBA issues PPP “EZ” loan forgiveness application
On June 16, the Small Business Administration (SBA), in consultation with the U.S. Treasury Department, released the Paycheck Protection Program (PPP) EZ Loan Forgiveness Application. According to the PPP Loan Forgiveness Application Form 3508EZ instructions, a borrower may use the streamlined form if it meets one of three criteria: (i) the borrower is self-employed, an independent contractor, or sole proprietor with no employees at the time of application; (ii) the borrower did not reduce salary or wages of any employee by more than 25 percent during the covered period and did not reduce the number of employees or the average paid hours of employees; or (iii) did not reduce salary or wages of any employee by more than 25 percent during the covered period and was unable to operate during the covered period at the same business activity level as prior to February 15, 2020, due to compliance with certain government requirements. Recently, a group of bipartisan senators urged the SBA to streamline the loan forgiveness form arguing that the “11-page forgiveness application” was “beyond the program’s intent” and that it was unnecessarily onerous (covered by InfoBytes here).
Additionally, the SBA released additional revisions to the interim final rule implementing Section 1102 of the CARES Act, which establishes the PPP, to reflect changes made by the PPP Flexibility Act of 2020. InfoBytes coverage regarding the PPP Flexibility Act changes can be found here.
SBA reopens economic injury disaster loans and advance program
On June 15, the Small Business Administration (SBA) reopened the Economic Injury Disaster Loan (EIDL) and the EIDL Advance program portal to new applicants experiencing economic impacts due to the Covid-19 pandemic, including qualified small businesses and U.S. agricultural businesses. The EIDL program offers long-term, low-interest federal disaster loans for small businesses or non-profit organizations that can be used to cover payroll and inventory, pay debt, or fund other expenses not already covered by a Paycheck Protection Program loan. The loans carry interest rates of 3.75 percent for small businesses and 2.75 percent for non-profits and have terms up to a maximum of 30 years. The first payment on these loans will also be deferred for one year. In addition, as part of the loan process, qualified applicants may also apply for an EIDL Advance, which “will provide up to $10,000 ($1,000 per employee) of emergency economic relief to businesses that are currently experiencing temporary difficulties.” These “emergency grants,” SBA notes, do not have to be repaid.
SBA codifies PPP flexibility guidance
Recently, the Small Business Administration (SBA) released an interim final rule (IFR) to incorporate key revisions made to the Paycheck Protection Program (PPP) by the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act). The Flexibility Act, as previously covered by InfoBytes, took effect June 5. Many of the Flexibility Act’s provisions, such as those related to loan forgiveness and deferral periods for PPP loans, are retroactive to March 27, 2020. The provision related to the maturity date of PPP loans took effect June 5, 2020, and the remaining provisions will take effect upon publication in the Federal Register.
The IFR codifies several changes made to the PPP, including the following:
- Reiterates that the last day a lender can obtain an SBA loan number for a PPP loan is June 30, 2020.
- Amends the end date of the “covered period” for a PPP loan from June 30, 2020 to December 31, 2020.
- Provides a minimum maturity of five years for all PPP loans made on or after the enactment of the Flexibility Act, and provides an option for borrowers and lenders to mutually agree to extend maturity from two years to five years for loans made before June 5.
- Clarifies that if a borrower submits its loan forgiveness application within 10 months of the end of the loan forgiveness period, the borrower will not be required to make any payments on the loan before the date SBA remits the forgiven amount to the lender or notifies the lender that loan forgiveness is not allowed.
- Extends the deferral period on PPP loans by extending the loan forgiveness period from eight weeks to 24 weeks beginning on the date the loan is disbursed. However, borrowers may opt to keep the forgiveness period at eight weeks for loans made prior to June 5, 2020.
- Sets the minimum amount that businesses must spend on payroll at 60 percent in order to receive forgiveness, but provides that—consistent with a safe harbor in the Flexibility Act—the SBA, in consultation with Treasury, will “interpret[] this requirement as a proportional limit on nonpayroll costs as a share of the borrower’s loan forgiveness amount, rather than as a threshold for receiving any loan forgiveness.” Revisions to the SBA’s IFRs on loan forgiveness and loan review procedures addressing these amendments are forthcoming.
The SBA also released an updated borrower application form, as well as a revised lender application.