Back to Basics, Continued—CARES Act and PPP Loan Forgiveness



At the beginning of the COVID-19 Pandemic when the American economy was in free-fall, Congress passed the Coronavirus, Aid, Relief and Economic Security (“CARES”) Act. This bill allotted $2.2 trillion to provide fast and direct economic aid to the American people negatively impacted by the COVID-19 Pandemic. One of its important features was the Paycheck Protection Program that provided loans to companies that maintained their employees on the payroll (“PPP Loans”). Small businesses with 500 or fewer employees—including nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors— were eligible. Businesses with more than 500 employees were eligible in certain industries.

Importantly, the CARES Act also provided that such loans could be forgiven if all conditions for forgiveness were met. Free money.

Early on, there was disagreement as to whether consumer finance companies were “qualified borrowers” for PPP Loans. The confusion stemmed from the fact that such companies were not qualified borrowers under the SBA’s Section 7a or 504 loan programs, and the SBA had been designated under the CARES Act to act essentially as the fiscal agent to distribute the thousands of billions of dollars! So, even though the PPP Loans had nothing to do with the traditional SBA lending programs, the SBA initially took the position that consumer finance companies did not qualify for CARES Act PPP Loans. After much disagreement, some banks did process PPP Loans for finance companies as allowable loans.

Now such PPP loans have moved into the “forgiveness” stage; and again, after initially objecting, the SBA appears to now be allowing the lenders to process forgiveness applications for their consumer finance company borrowers. We have seen several reports from consumer finance companies that their lenders have received SBA funding that essentially pays for the loan forgiveness.

The national trade associations took up this issue with the SBA as well as with members of Congress to change some minds. Apparently, the SBA has gotten on board with the clear reading of the CARES Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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