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Treasury, SBA report on second round of PPP loan processing
On May 3, the Department of Treasury (Treasury) and the Small Business Administration (SBA) released a joint statement detailing the performance of the second round of the Paycheck Protection Program (PPP) thus far. The statement shares that PPP loans made during the first week of round two loan processing—beginning on April 27—reached 2.2 million totaling more than $175 billion. This brings the total since the program began on April 3, to more than 3.8 million loans with a value of more than $.5 trillion. According to the second round report accompanying the joint statement, of the nearly 5,450 lenders, just over 4,450 were lenders with less than $1 billion in assets as well as non-bank lenders—which “include Community Development Financial Institutions, Certified Development Companies, Microlenders, Farm Credit lending institutions, and FinTechs.” The average loan size during the first week of round two was $79,000.
Since the release of the joint statement, the SBA has provided updated PPP loan processing numbers on its website, which can be accessed here.
Waters urges exclusion of predatory lenders from PPP loans
On May 1, Chairwoman of the House Financial Services Committee, Maxine Waters (D-CA), sent a letter to the Department of Treasury (Treasury) and the Small Business Administration (SBA) urging them to prohibit payday and car-title lenders from receiving Paycheck Protection Program (PPP) loans, citing harm these types of lenders have caused to consumers. The Congresswoman stressed that “there is no reason why Congress, SBA, or Treasury should bail out these predatory lenders” and encouraged them to instead focus on “providing PPP loans to the millions of responsible small businesses who are pillars in communities across the country and warrant immediate support.”
PPP loan application agent files suit against lenders for compensation
On April 30, an Illinois financial advising and consulting services business (company) filed a putative class action in the U.S. District Court for the Northern District of Illinois against several financial institutions (defendants) claiming that the defendants owe the business certain fees for assisting Paycheck Protection Program (PPP) loan applicants with applying for PPP loans under the CARES Act. The complaint alleges that the PPP SBA regulations specify that the lender must provide compensation of between one quarter of a percent and one percent of a loan’s value to an agent—which includes loan brokers, applicant representatives, consultants, accountants, and attorneys—for preparing PPP loan applications for small business applicants. Additionally, the company states that the PPP regulations prohibit it from collecting application fees directly from small business applicants that it assists. The company alleges that the defendants, in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, failed to compensate it for assisting with the preparation of applications submitted to the defendants for processing. The company seeks certification of the class, disgorgement, and punitive damages, among other things.
Fed expands Main Street Lending Program
On April 30, the Federal Reserve (Fed) announced plans to expand the Main Street Lending Program in order to “help credit flow to small and medium-sized businesses that were in sound financial condition before the pandemic.” As previously covered by a Special Alert, the Main Street Loan Program was established pursuant to the CARES Act to support small and medium-sized businesses by extending four-year loans with deferred principal and interest payments for the first year. Loan amounts started at $1 million and businesses with up to 10,000 employees or up to $2.5 billion in annual revenues could apply, with the majority of the loans then sold to a Main Street facility, while the lenders retained a 5 percent share of the loans. The Main Street Lending Program utilized a Main Street New Loan Facility (MSNLF) to provide an option for new loans, and a Main Street Expanded Loan Facility (MSELF) to provide a second option for increasing the amount of existing loans. After the Main Street Lending Program was introduced, the Fed received a large amount of feedback, which it used to make a number of modifications to the program. The modifications include:
- Increasing the size of eligible businesses to those with up to 15,000 employees or up to $5 billion in annual revenues for 2019;
- Adding a third loan option called priority, which increases “risk sharing by lenders for borrowers with greater leverage”;
- Increasing the percentage share of loans that lenders retain in the priority loan option to 15 percent; and
- Lowering the starting loan amount to $500,000 for the new loan and priority loan options.
Additional information can be found in the announcement and in the Main Street Lending Program Frequently Asked Questions here. See term sheets for the New Loan Facility here, Priority Loan Facility here, and the Expanded Loan Facility here.
SBA to limit maximum PPP loans to $20 million for corporate groups
On April 30, the Small Business Administration (SBA) issued an Interim Final Rule (IFR) prohibiting a “single corporate group” from receiving more than $20 million in the aggregate from the Paycheck Protection Program (PPP). Businesses are considered to be a part of a single corporate group “if they are majority owned, directly or indirectly, by a common parent.” Small businesses must adhere to this loan cap by withdrawing or cancelling any PPP loan application or approval above $20 million for any loan that is not fully disbursed as of April 30. Failure to follow the IFR, will make such loans ineligible for loan forgiveness. The IFR assures lenders that they are not responsible for a small business’s compliance with this rule, and further, that the IFR does not alter lender obligations required to procure an SBA loan guarantee. In addition, the IFR allows a non-bank lender to be a PPP lender, subject to certain criteria, if the non-bank lender is “either a community development financial institution…or a majority minority, women, or veteran/military owned lender.” The IFR is effective as of May 4, and comments must be received by June 3.
SBA, Treasury discuss borrower eligibility for PPP loans
On April 29, the Small Business Administration (SBA), in consultation with the Department of Treasury (Treasury) released two new frequently asked questions (FAQs) regarding the Paycheck Protection Program (PPP). The new guidance states that businesses in operation as of February 15, 2020 are eligible to apply for PPP loans, even if the business changes ownership after that date, as long as all other criteria are met. The SBA also plans to review each PPP loan of $2 million or more after the lender submits the small business borrower’s application for forgiveness, and states that as long as lenders follow the PPP lender requirements, all loans will retain the SBA guarantee no matter what the SBA review concludes. A joint Treasury and SBA statement suggests that because a “large number of companies” returned their PPP loans after the SBA issued guidance on PPP borrower loan certification (covered by InfoBytes here), the review of loans $2 million and above will “ensure PPP loans are limited to eligible borrowers.”
Earlier in the week, Treasury and the SBA added additional guidance in the FAQs addressing various other eligibility questions. These include:
- Borrowers should refer to FAQ #31 (covered by InfoBytes here) to determine whether a small business “owned by large companies with adequate sources of liquidity to support the business’s ongoing operations” would be eligible to apply for a PPP loan;
- Housing stipends or housing allowances to employees are compensation and should be included in the employer’s calculation of payroll costs;
- To determine an employee’s principal place of residence, lenders and borrowers should consult IRS regulations (26 CFR §1.121-1(b)(2));
- Agricultural producers, farmers, and ranchers can apply for PPP loans as long as the individual or entity meets certain criteria, including that it has 500 or fewer employees or $1 million or less in annual receipts;
- Agricultural cooperatives and other cooperatives may apply for PPP loans as long as they meet all PPP requirements; and
- Small business PPP loan applicants must count all employees—full-time and part-time—when calculating whether the small business has 500 or fewer employees.
On April 24, the SBA issued an interim final rule stating, among other things, that hedge funds and private equity firms are not eligible to apply for PPP loans, and that companies in private equity portfolios should consider whether they can make the required good faith certification of need for the PPP loans. In addition, small businesses in bankruptcy proceedings are not eligible to apply for PPP loans.
SBA issues IFR on PPP loan disbursement requirements
On April 28, the Small Business Administration (SBA) issued an interim final rule (IFR) regarding disbursements under the SBA’s Paycheck Protection Program (PPP). The IFR explains that PPP lenders must fund loans to approved small businesses—those that were issued an SBA loan number—in one disbursement. Borrowers may not request multiple disbursements to delay their eight weeks of coverage. Further, the start date for the eight weeks of coverage for any loans that were approved but are not fully disbursed is the date of the first disbursement. The IFR makes clear that funds must be disbursed within 10 days of a borrower’s loan approval date, and that the 10 days starts on April 28 for any loans that were previously approved but not disbursed prior to the issuance of the IFR. PPP lenders are not responsible for disbursement delays based on the failure of the borrower to submit required documents, and a borrower’s loan will be cancelled if all required documents are not submitted within 20 days of loan approval. The IFR further instructs that in order to receive the lender processing fee, PPP lenders must disburse each loan and submit SBA Form 1502 within 20 days of loan approval. As this form has not yet been released, the deadline for submitting the form for previously approved loans is May 18. The IFR states that lenders will not receive the processing fee for loans that are: (i) cancelled by the borrower prior to disbursement of loan funds; or (ii) cancelled and repaid by the borrower after disbursement of loan funds. The IFR is effective immediately, and comments must be submitted by June 3.
OCC issues guidance to banks on tracking PPP loan data
On April 27, the OCC issued guidance for banks on receiving credit under the Community Reinvestment Act (CRA) for the loans the banks made to small businesses through the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The guidance suggests that lenders should track the PPP loan data, particularly for loans to businesses with $1 million or less in annual revenues that are located in underserved, distressed or low to moderate-income (LMI) areas. The OCC states that tracking this data along with lending decisions and loan volume data “is a prudent banking practice consistent with the principles of safety and soundness and fair access and fair treatment of borrowers.” The SBA’s PPP frequently asked questions can be found here.
CFPB outlines lending discrimination warning signs for small businesses applying for PPP loans
On April 27, the CFPB posted a reminder that federal laws such as ECOA protect business owners from discrimination on the basis of protected characteristics when applying for loans under the CARES Act Small Business Administration’s Paycheck Protection Program or other loan programs. The Bureau’s blog post provides several examples of potential lending discrimination warning signs, including (i) being refused for an available loan or workout option even though the business meets the advertised requirements; (ii) being offered credit or workout options with higher rates or worse terms even though the business may be eligible for lower rates; (iii) being discouraged by a lender from applying due to a protected characteristic; (iv) being denied credit without being told why; and (v) receiving negative comments about race, national origin, sex, or other protected characteristics. Lending discrimination complaints may be submitted here, and the Bureau notes that it takes complaint information into account when conducting supervisory and enforcement work.
SBA, Treasury announce guidance on PPP loan processing
On April 26, the Small Business Administration (SBA) updated information regarding the operations of the Paycheck Protection Program (PPP) to supplement an April 24 statement from the SBA and the Department of Treasury (Treasury) announcing that the PPP would restart. Through funding from the PPP and Health Care Enhancement Act signed on April 24, the SBA’s PPP resumed processing loan applications on April 27. The SBA also issued a guidance memo for lenders describing XML file transmission of completed loan applications. The memo advises that lenders may send one bulk submission each of no less than 15,000 loans, which the SBA will process into their E-Tran system. Lenders will then receive one file from the SBA providing loan guarantee numbers and loan amounts for approved applications, as well as a report of loan applications that were not “successfully processed by the SBA loan systems.” The SBA update details additional actions it will take when processing loans, which include: (i) “[p]acing the number of loans processed in the E-Tran system”; (ii) limiting each lender to originating a maximum of 10 percent of the PPP funds available, (iii) “[i]mplementing operational standards to ensure that lenders access PPP funds based on their asset size”; (iv) making certain that applications are processed in the order submitted; and (v) providing guidance to lenders with “a significant amount of loan applications.”