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SBA clarifies bankruptcy PPP eligibility
On April 6, the Small Business Administration (SBA) updated its Paycheck Protection Program (PPP) frequently asked questions to clarify when an applicant or owner is no longer considered to be “presently involved in any bankruptcy” for PPP loan eligibility purposes. In order to be eligible for a PPP loan, SBA requires all borrowers to certify on their applications that the applicant, as well as any owner of 20 percent or more of the applicant, is not “presently involved in any bankruptcy.” SBA’s FAQ provides that “[i]f an applicant or owner has filed a Chapter 7 bankruptcy petition, the applicant or owner is considered to be ‘presently involved in any bankruptcy’ for PPP eligibility purposes until the Bankruptcy Court has entered a discharge order in the case.” For Chapter 11, 12, or 13 bankruptcy petitions, the applicant or owner will be “considered to be ‘presently involved in any bankruptcy’ for PPP eligibility purposes until the Bankruptcy Court has entered an order confirming the plan in the case.” An applicant or owner will not be considered to be “presently involved in any bankruptcy” if the Bankruptcy Court has entered an order dismissing the case, regardless of the type of bankruptcy petition. SBA stipulates, however, that the order must be entered before the date of the PPP loan application.
The SBA also issued a procedural notice to lenders announcing it will shut down the PPP platform to new PPP loan guaranty applications at 12 a.m. EDT on June 1.
Biden extends PPP deadline
On March 30, President Biden signed the PPP Extension Act of 2021, extending the covered period for the Paycheck Protection Program from March 31 to June 30. However, new loan applications will not be accepted after May 31.
SBA gives guidance on PPP loan-error codes
On March 29, the Small Business Administration (SBA) issued an updated procedural notice to lenders providing instructions on Paycheck Protection Program (PPP) loan error codes. The notice revises guidance provided in a previously issued procedural notice (covered by InfoBytes here) and addresses (i) Second Draw PPP loan guaranty applications where there is a hold code on the borrower’s First Draw PPP loan, as well as (ii) First Draw PPP loan guaranty applications and Second Draw PPP loan guaranty applications with compliance check error messages. The updates address compliance check error messages related to disqualifying criminal history, delinquent or defaulted federal student loan restrictions, and updated lender certification.
SBA increases lending limit for Covid-19 EIDL program
On March 24, the Small Business Administration (SBA) announced that the maximum amount small businesses and non-profit organizations can borrow through its Covid-19 Economic Injury Disaster Loan (EIDL) program will increase beginning the week of April 6. According to the announcement, SBA will raise the loan limit for Covid-19 disaster loans “from 6-months of economic injury with a maximum loan amount of $150,000 to up to 24-months of economic injury with a maximum loan amount of $500,000.” New loan applications, as well as loans-in-process when the increase takes effect “will automatically be considered” for the new maximum loan limit. This change follows SBA’s announcement earlier this month, which extended the deferment period for all disaster loans, including Covid-19 EIDLs, until 2022 (covered by InfoBytes here).
SBA implements newest PPP changes
On March 22, the SBA published an interim final rule (IFR) implementing recent changes to the Paycheck Protection Program (PPP) that were included in the American Rescue Plan Act of 2021, enacted on March 11 (covered by InfoBytes here). These changes include “expanding the eligibility for First- and Second-Draw PPP loans, revising the exclusions from payroll costs for purposes of loan forgiveness, and providing that a PPP borrower that receives a PPP loan after December 27, 2020 can be approved for a Shuttered Venue Operator Grant [(SVOG)] under certain conditions.” Specifically, if a borrower received a First- or Second-Draw PPP loan after December 27, 2020, the amount of the subsequently approved SVOG will be reduced by the amount of the PPP loan. However, if a PPP applicant is approved for an SVOG before SBA issues a PPP loan number, the applicant will be ineligible for the PPP loan and “acceptance of any PPP loan proceeds will be considered an unauthorized use.” The IFR also provides several other clarifications and changes, which will apply to PPP loans approved, as well as loan forgiveness applications submitted, on or after March 11, 2021. The IFR took effect March 18. To assist SVOG applicants, SBA announced the launch of a splash page for the SVOG application portal, which will begin accepting applications April 8.
Earlier on March 18, SBA also released the following updated forms: (i) PPP loan guaranty application for lenders; (ii) Second-Draw loan guaranty lender application; (iii) First-Draw and Second-Draw PPP loan application forms; and (iv) First-Draw and Second-Draw PPP borrower applications for Schedule C filers using gross income.
SBA defers all disaster and EIDL loans until 2022
On March 12, the Small Business Administration (SBA) extended the deferment period for all disaster loans, including the Covid-19 Economic Injury Disaster Loan (EIDL) program, until 2022. Specifically, the first payment due date for SBA disaster loans made in calendar year 2020 is extended from 12-months to 24-months from the date of the note. SBA disaster loans made in calendar year 2021 will have their first payment due date extended from 12-months to 18-months from the date of the note. SBA notes that existing SBA disaster loans approved before 2020 that were in regular servicing status of March 1, 2020 (and that previously had received an extended initial deferment period through March 31), will automatically be granted an additional 12-month deferment of principal and interest payments. SBA stresses, however, that interest will continue to accrue on outstanding loan balances through the duration of the deferment.
SBA changes income calculations for self-employed PPP applicants
On March 12, the Small Business Administration (SBA) updated its Paycheck Protection Program (PPP) frequently asked questions to reflect recent changes allowing self-employed, Schedule C filers to use gross income to calculate PPP loan amounts. As previously covered by InfoBytes, SBA issued an interim final rule earlier this month implementing the calculation change for loans approved after March 4, 2021. The new FAQ includes options for lenders assisting filers who already applied for a PPP loan but who now want to use gross income to calculate their loan amount. Although some filers may update their calculation, SBA’s guidance states that if a lender “has disbursed the loan and filed the related Form 1502 Report reporting disbursement of the loan, no changes can be made to the loan amount calculation.” Additionally, SBA issued updated guidance on maximum loan amount calculations for First Draw PPP loans, as well as revenue reduction and maximum loan amount calculations for Second Draw PPP loans.
SBA allows self-employed filers to use gross income to calculate PPP loan amounts
On March 4, the Small Business Administration (SBA) issued an interim final rule (IFR) to implement recent changes to the Paycheck Protection Program (PPP) calculation for IRS Form 1040, Schedule C filers. Self-employed individuals who file Schedule C will now be able to calculate their maximum loan amount using gross income. This calculation change only applies to loans approved after March 4, 2021, and borrowers that have already had their loans approved cannot increase their PPP loan amount based on the new maximum loan formula. SBA also notes that a previously provided safe harbor presumption of making “the statutorily required certification concerning the necessity of the loan request in good faith” will not apply to Schedule C filers that elect to calculate their First Draw PPP loan using gross income if they report more than $150,000 in gross income. These borrowers will be subject to additional SBA review as they will most likely have additional sources of liquidity to support business operations. The IFR further removes eligibility restrictions that prohibit businesses owned at least 20 percent by individuals (i) who have a non-financial fraud felony conviction in the last year, or (ii) who are delinquent or in default on their federal student loans. These changes apply to both First Draw and Second Draw PPP loans.
To assist borrowers, SBA released the following revised forms: First Draw application form and Schedule C gross income form, Second Draw application form and Schedule C gross income form, and lender applications for First Draw and Second Draw loans. The IFR takes effect March 4.
CFPB files Section 1071 status report, evaluates recommendations
On February 22, the CFPB filed its fourth status report in the U.S. District Court for the Northern District of California as required under a stipulated settlement reached in February with a group of plaintiffs, including the California Reinvestment Coalition. The settlement (covered by InfoBytes here) resolved a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses.
Among other things, the Bureau notes in the status report that it has satisfied the following required deadlines: (i) last September it released a Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) outline of proposals under consideration (InfoBytes coverage here); and (ii) it convened an SBREFA panel last October and released the panel’s final report last December (InfoBytes coverage here). The settlement next requires the parties to confer about a deadline for the Bureau to issue a Section 1071 notice of proposed rulemaking (NPRM). According to the status report, the Bureau’s rulemaking staff is in the process of evaluating the panel’s recommendations as well as stakeholder feedback, and has begun briefing new Bureau leadership “on the significant legal and policy issues that must be resolved to implement the Section 1071 regulations” and prepare the NPRM. The Bureau notes that the parties continue to discuss an appropriate deadline for issuing the NPRM, emphasizing that if the parties agree on a deadline, they “will jointly stipulate to the agreed date and request that the court enter that deadline.” As previously covered by InfoBytes, acting Director Dave Uejio stated recently that he has “pledged” the Bureau’s Division of Research, Markets, and Regulations “the support it needs to implement section 1071 of the Dodd-Frank Act without delay.”
Find continuing Section 1071 coverage here.
Biden announces measures to ensure PPP loan access to "mom and pop" businesses
On February 22, the Biden administration announced measures to ensure the smallest businesses have access to Paycheck Protection Program (PPP) loans. (See also SBA press release here.) Specifically, the Biden administration has directed the Small Business Administration (SBA) to (i) provide an exclusive 14-day application window, starting Wednesday, February 24, during which only businesses with fewer than 20 employees are eligible to apply; (ii) set aside $1 billion for PPP loans for sole proprietors, independent contractors, and self-employed individuals in low- and moderate-income areas, and revise the loan calculation formula for these applicants to offer more relief; (iii) eliminate an exclusion that prevented small businesses owned at least 20 percent by an individual who was arrested for or convicted of a felony unrelated to financial assistance fraud within the previous year from applying for a PPP loan; (vi) eliminate the student loan delinquency restriction, which currently prevents small businesses owned at least 20 percent by an individual who is delinquent or has defaulted on student debt from receiving PPP loans; and (v) ensure non-citizen small business owners who are lawful U.S. residents may apply for PPP loans using individual taxpayer identification numbers.
Additionally, the Biden administration stated that SBA “is launching a new initiative to deepen its relationships with lenders” in order to facilitate communication regarding the PPP. The current round of PPP funding expires March 31 (covered by InfoBytes here).