By Kendra Rubin, Vice President of Government Affairs

The recently enacted Coronavirus Aid, Relief, and Economic Security Act contains a new Small Business Administration 7(a) lending program in section 1102 of the bill, known as the Paycheck Protection Program.

The program is designed to encourage small business employers to keep their workers on payroll by providing a loan up to $10 million for expenses, including payroll. The amount a business is eligible to borrow is “250% of their average monthly payroll expenses, up to $10 million. This amount is intended to cover 8 weeks of payroll expenses and any additional amounts for making payments towards debt obligations,” according to the legislation.

Pursuant to the SBA, “If all employees are kept on payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest, or utilities. Up to 100 percent of the loan is forgivable.”

This new program allows SBA 7(a) lenders to provide business loans under this provision during the covered period of February 15, 2020 through June 30, 2020, and the loans are guaranteed by the SBA for 100% of the outstanding balance.

The SBA has released additional guidance and a sample application form for borrowers. Lenders may begin processing loan applications as soon as April 3, 2020, and more information is available on the SBA’s website.  The Senate Committee on Small Business & Entrepreneurship also released helpful guidance with additional details on the program.

Businesses eligible to receive loans under the PPP include:

• for-profit businesses;
• 501(c)(3)s;
• veterans organizations; and
• tribal businesses.

As long as the business does not employ more than the greater of:

• 500 employees; or
• if applicable, the size standard in number of employees established by the administration for the industry in which the business concern, nonprofit organization, veterans organization, or tribal business concern operates, according to the legislation.

Businesses eligible to lend under the PPP include:

• existing SBA-certified lenders;
• federally insured depository institutions;
• federally insured credit unions; and
• Farm Credit System institutions.

Allowable uses of covered loans include:

• payroll;
• health care benefits;
• employee salaries and compensation;
• interest on debt obligations;
• rent; and
• utilities.

As noted above, credit unions are not currently eligible to receive a PPP loan. The CARES Act explicitly lists those businesses eligible to receive a covered loan; they include:

• business concerns (federal regulations define business concerns as entities “organized for profit,” which excludes credit unions from qualifying as a borrower under this criteria);
• nonprofit organizations (the CARES Act defines “nonprofit organizations” as 501(c)(3) organizations, which excludes credit unions from qualifying as a borrower under this criteria;)
• veterans organizations
• tribal businesses

Credit unions do not fit within any of the categories of businesses eligible to receive a PPP loan, and therefore are not permitted to do so at this time. The Association is aware of this issue and raised it directly with Congress on Tuesday, and will continue to keep membership apprised of any further developments as they become available.

Additionally, the Association is awaiting additional guidance on the application process. Since the PPP is brand new, all facets of the program have not yet been finalized and details will continue to roll out. We are still awaiting further clarity on the application process from SBA. However, the Senate guidance indicates borrowers can apply at any SBA 7(a) lender.

Additional guidance on applying to be an SBA 7(a) lender under the PPP is expected in the coming days. However, applicants can also contact their local SBA district office using the following link to begin the application process. Become an SBA lender.

The US Treasury released a guidance document today that begins to answer some of these questions: Treasury Guidance.

As always, the Association will keep you updated as further information becomes available.