In a letter to credit unions Tuesday, NCUA Chairman Rodney Hood said that NCUA will not criticize credit unions’ good-faith efforts to prudently use the SBA programs with members affected by COVID-19.
The recently enacted CARES Act contains SBA’s Paycheck Protection Program, which Hood noted is different from the SBA’s 7(a) loan program in several ways, including:
- unlike 7(a) loans, PPP loans are 100% guaranteed, meaning there is no credit risk to a credit union if it complies with the applicable lender obligations set forth in the interim final rule;
- PPP loans are 100% guaranteed by the federal government and are not included in the member business loan cap;
- the full principal amount of a PPP loan may qualify for loan forgiveness;
- PPP loan’s may have a size up to $10 million, which is twice the amount of a 7(a) loan;
- the PPP will be available to eligible borrowers on a first-come, first-served basis; and
- lenders must comply with the applicable lender obligations set forth in the interim final rule, but will be held harmless for any borrower’s failure to comply with program criteria.
Hood said that all current SBA 7(a) lenders are automatically approved to make PPP loans and that federally insured credit unions that are not approved 7(a) lenders can receive SBA approval by submitting a CARES Act Section 1102 Lender Agreement.
Borrowers must have been in operation on February 15, 2020 to qualify and financial businesses “primarily engaged in the business of lending,” which includes credit unions, cannot borrow under the PPP due to SBA regulations. However, as previously reported, the New York Credit Union Association issued a call to action on Friday urging expansion of the PPP to include all federally insured credit unions as borrowers.
Also in the letter, Hood said that small businesses affected by COVID-19 may be eligible for additional assistance through the SBA’s Economic Injury Disaster Loan program, which was created to provide economic support to small businesses to help them overcome temporary loss of revenue experienced due to the pandemic.
Finally, Hood said that the NCUA “strongly encourages credit unions and their members to review the interim final rule and any subsequent changes.”
The full letter can be accessed on the NCUA website.