The Small Business Administration (SBA) published an Interim Final Rule Thursday, effective immediately, announcing the implementation of Sections 1102 and 1106 of the CARES Act. These sections address the “Paycheck Protection Program,” (PPP) a new product in the SBA’s 7(a) Loan Program.

“Credit unions are eager to serve their members and communities, and they want to help small businesses succeed through the SBA’s Paycheck Protection Program,” said CUNA President/CEO Jim Nussle. “The CARES Act was enacted less than a week ago and there have been a number of questions regarding the expectations for lenders under this program to be able to help numerous businesses weather financial challenges due to the growing and ongoing public health crisis. We appreciate the guidance that has been published this evening, and we are reviewing it closely.

“Nevertheless, the guidance was released hours before this program is set to begin and there are still a number of unanswered questions which will very likely complicate quick fulfillment of these critical loans,” Nussle added. “Credit unions will now begin the complex task of successfully implementing a $350 billion rescue program from the ground up, and we’ll be working tirelessly to do so.”

CUNA and Leagues look forward to working with credit unions and SBA so consumers can receive these loans expeditiously from their credit union.

Highlights of the guidance include:

• All SBA-certified 7(a) lenders are automatically approved to make PPP loans. In addition, any federally insured credit union and any federally insured depository institution that have been determined by SBA and the Treasury to meet the criteria outline in the CARES Act and are eligible to make PPP loans unless they currently are designated in Troubled Condition by their primary federal regulator or are subject to a formal enforcement action with their primary federal regulator that addresses unsafe or unsound lending practices.
• Eligible borrowers must have 500 or fewer employees and satisfy SBA definitions of “small business concern” or are a tax-exempt non-profit organization described in section 501(c)(3) or 501(c)(19) of the Internal Revenue Code, or are a Tribal business concern, and were in operation with employees or independent contractors on Feb 15, 2020. Sole proprietors or independent contractors or eligible self-employed individuals may also be eligible of in operation on Feb 15, 2020;
• A small business is eligible to borrow the lesser of $10 million or an amount that is calculated using a formula in the CARES Act. Payroll costs consist of:
  • Compensation to employees in the form of salary, wages, commissions, or similar compensation;
  • Payment for vacation, parental, family, medical, or sick leave;
  • Allowance for separation or dismissal;
  • Payment for the provision of employee benefits consisting of group health care coverage;
  • Payment of state and local taxes assessed on compensation of employees; and
  • Certain other costs.
• Loans guaranteed under the PPP will be 100% guaranteed by SBA, and the full principal amount of the loans may qualify for loan forgiveness;
• The interest rate on a PPP loan is 100 basis points or 1% percent. Loans have a two-year maturity;
• Any portion of the loan used to make payroll, pay for utilities, rent, mortgage, and existing business debt may be forgiven, dollar for dollar if workers remain employed through the end of June. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest;
• Payments do not need to be made for six months following the date of disbursement of the loan.  However, interest will continue to accrue on PPP loans during this six-month deferment.
• SBA will allow lenders to rely on certifications of the borrower in order to determine eligibility of the borrower and use of loan proceeds and to rely on specified documents provided by the borrower to determine qualifying loan amount and eligibility for loan forgiveness; and
• Lenders much comply with the applicable lender obligations but will be held harmless for borrower’s failure to comply with program criteria;

Additional information, including on lender’s fees, loan terms and conditions and more can be found on CUNA’s CompBlog.