Yesterday, April 2, the Small Business Administration issued an interim final rule providing additional guidance on implementing its Paycheck Protection Program. While questions still remain, here is the new information that lenders need to know:
- Lenders who are already SBA 7(a) lenders may begin accepting and processing applications today. Other lenders can become eligible upon meeting certain conditions.
- A new form of borrower application was released yesterday and the lender application form for loan guaranty was released this morning.
- Interest rates are fixed at 1% with a 2 year term; 75% of the loan amount must be used for payroll costs.
- Underwriting examples are provided in the guidance, but the examples leave some uncertainty regarding calculations and requirements. The four primary criteria set forth in the guidance state that lenders shall:
- Confirm receipt of borrower certifications contained in Paycheck Protection Program Application form issued by the Administration;
- Confirm receipt of information demonstrating that a borrower had employees for whom the borrower paid salaries and payroll taxes on or around February 15, 2020;
- Confirm the dollar amount of average monthly payroll costs for the preceding calendar year by reviewing the payroll documentation submitted with the borrower’s application; and
- Follow applicable BSA requirements:
- Federally insured depository institutions and federally insured credit unions should continue to follow their existing BSA protocols when making PPP loans to either new or existing customers who are eligible borrowers under the PPP. For existing customers, PPP loans will not require re-verification under applicable BSA requirements, unless otherwise indicated by the institution’s risk-based approach to BSA compliance.
- Each lender’s underwriting obligation under the PPP is limited to the items above and reviewing the “Paycheck Protection Application Form.” Borrowers must submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.
- Lenders may rely on borrower documentation for loan forgiveness.
- Clarification on SBA’s “affiliation” rules was not provided, but additional guidance may be issued.
While there are still many open questions with respect to this latest guidance, we are actively monitoring any updates and will continue to provide additional information to you as it becomes available. If you have any questions do not hesitate to contact our team, we are happy to talk through the guidance available to date, what it means for your financial institution and discuss best practices in light of current uncertainty. We are also available to prepare loan documents for a flat fee that you could utilize for the PPP loans.