Disclaimer: This information is subject to forthcoming SBA regulations. We continue to monitor those developments and will update this information as additional guidance becomes available. On March 31, 2020, the SBA and Treasury posted information on their respective websites. On April 2, 2020, the SBA published Interim Final Rules. The information from the March 31 information and the April 2 Interim Final Rules is noted and included here. Some of that information is inconsistent with the CARES Act itself, but absent further clarification we are assuming the information in the Interim Final Rules will control. This information is a summary only and all clients should be encouraged to read and review the Interim Final Rules for more specifics, the current versions of which are attached here.

This FAQ is intended to help answer lender-specific questions on making and entering into PPP loans under the CARES Act. Please also see the Borrower perspective FAQs for additional information on the PPP loan program.

Q:   What is the application process?

A:    PPP loans will be made through an SBA-approved lender and will be guaranteed by the SBA. If the business has a relationship with a lender, it should immediately contact that lender to see if that lender will be making PPP loans. The business should immediately begin working with an SBA-approved lender to confirm eligibility and to start the application process.

The PPP application, regulations and other guidance is posted on the Treasury’s website.

Q:   What lenders can make PPP loans under the CARES Act?

A:

• Lenders already approved by the SBA to make 7(a) loans.
• The following types of lenders so long as they are not currently designated as in “Troubled Condition” by or subject to a formal enforcement action addressing unsafe or unsound lending practices with their primary federal regulator:
  • Any federally insured depository institution or federally insured credit union
  • Any Farm Credit System institution (other than the Federal Agricultural Mortgage Corporation) as defined in 12 USC 2002(a) that applies the requirements of the Bank Secrecy Act (BSA) and its implementing regulations
  • Any depository or non-depository financing provider that
    • Originates, maintains, and services business loans or other commercial financial receivables and participation interests,
    • Applies the requirements of BSA,
    • Has been operating since February 15, 2019, and
    • Has originated, maintained and serviced at least $50,000,000 in business loans or other commercial receivables during a consecutive 12-month period in the last 36 months;
    • Or is a service provider to any insured depository institution that has a contract to support such institution’s lending activities in accordance with 12 USC 1867(c) and is in good standing with the appropriate federal banking agency
• The Interim Final Rule on April 2, 2020 stated that the types of lenders in the first two bullet points above will be automatically qualified upon submission of a CARES Act Section 1102 Lender Agreement (SBA Form 3506); however, only Form 2484 was posted and all lenders are instructed on that form to submit with all PPP loan applications (see next question). If Form 3506 is posted by the SBA or Treasury Department, lenders should also follow instructions on such form.

Q:   Are lenders required to submit any special forms or paperwork with the application?

A:   Yes, all lenders, new and existing, must submit Form 2484 with PPP loan applications. New lenders (those not already approved as SBA lenders) that are eligible to be PPP lenders must also submit Form 3506.

Q:   What percentage of PPP loans are guaranteed by the SBA?

A:    100% of amount not forgiven (see discussion on forgiveness, below); however, at least 75% of the forgiven amount must have been used for payroll.

Q:   Are PPP loans secured?

A:    No.

Q:   Are PPP loans under the CARES Act limited to a certain timeframe?

A:   Yes, loans made from February 15, 2020 to and including June 30, 2020. The CARES Act contains a requirement that a PPP loan be registered with the SBA within 15 days of closing on the loan, so the SBA will need to clarify how to qualify loans between February 15, 2020 and the date of enactment of the CARES Act.

Q:   What is the maximum principal amount of the PPP loans?

A:           

• Up to $10,000,000. The formula for determining the amount is the lesser of (1) $10,000,000; and (2) 2.5 times the average monthly payroll costs (see below for definition) incurred during the one-year period before the date on which the loan is made.
• Please note that for seasonal employers, as determined by the SBA, the measurement period is either (1) the 12-week period beginning February 15, 2019 or (2) March 1, 2019 to June 30, 2019, at the election of the borrower.
• If the business was not operating during the period from February 15, 2019 until June 30, 2019, the relevant measurement period is January 1, 2020 through February 29, 2020.
• In addition, if a business took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and wants to refinance that loan into a PPP loan, the outstanding amount of the EIDL loan can be added to the amount of the PPP loan. Amount may be limited by prior PPP loans previously received by Borrower during covered period (February 15, 2020 to and including June 30, 2020).
• See CARES Act SBA Loan Programs FAQs for additional details.
• See Interim Final Rules for examples of calculation.

Q:   What is the maximum interest rate lender can charge on a PPP loan?

A:    1.0%

Q:   What is the maximum maturity for a PPP loan?

A:    2 years.

Q:   What underwriting is a lender required to do for a PPP loan?

A:   

• Confirm receipt of borrower certifications contained in the applications.
• Confirm receipt of information demonstrating borrower had employees for whom borrower paid salaries and payroll taxes on or around February 15, 2020.
• Confirm dollar amount of average monthly payroll costs for preceding calendar year by reviewing the payroll documentation submitted with application.
• 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.
  • Not required to re-verify existing customers unless otherwise indicated by institution’s risk-based approach to BSA compliance.
  • If entity not presently subject to BSA compliance, required to establish compliance program.
• Review application form.

Q:   What liability does a lender have for failure of a borrower to comply with the PPP requirements or lender’s underwriting and due diligence actions?

A:   

• Lenders may rely on certifications of the borrower in order to determine eligibility and to rely on specified documents provided by the borrower to determine qualifying loan amount and eligibility for forgiveness
• Lenders held harmless for borrowers’ failure to comply with program criteria
• Administrator cannot take enforcement action or impose penalties if the lender has received a borrower attestation

Q:   Can PPP loans be sold on the secondary market?

A:    Yes, once the PPP loan is fully disbursed, the PPP loan may be sold on the secondary market at par, premium or discount. The SBA will not collect any fee for any guarantee sold on the secondary market, according to lender guidelines posted by the U.S. Treasury Department on its website on March 31, 2020. The SBA regulations issued April 2, 2020 state that further guidance will come.

Q:   Can PPP loans be syndicated or participated?

A:    No.

Q:   Are there restrictions on the types and amounts of fees and expenses that the lender may charge to the borrower or to the SBA?

A:    Yes.

• The SBA will reimburse the lender for “processing” based on the principal amount of the loan at the time of disbursement, as follows:
  • 5.00% up to not including $350,000;
  • 3.00% from 350,000 to, but not including $2,000,000; and
  • 1.00% from $2,000,000 and up.
  • Such reimbursement shall be paid by the SBA within 5 days of the loan disbursement.
• Agents that assist eligible borrower to prepare an application may not collect fees in excess of the limits established by the SBA. Agent fees cannot be paid by borrower or out of loan proceeds, but must be paid by the lender from the lender fees.

Q:   What other limits are applicable to the terms of a PPP loan?

A:     (1) Deferral of payments for a period of 6 months, including payment of principal, interest and fees. Interest will accrue, but payments will not be required during the first 6 months. (2) No prepayment penalty.

Q:   How do PPP loans affect lender capital requirements?

A:    The CARES Act provides that PPP loans shall be given a risk weight of 0% with respect to Federal banking or National Credit Union Administration Board applying capital requirement under their respective risk-based capital requirements.

Q:   What amounts of a PPP loan can be forgiven?

A:   

• At least 75% of the forgiven amount must have been used for payroll.
• Forgiveness available for amounts incurred and payments made during the 8 weeks beginning on the date of origination of the loan related to:
  • payroll costs,
  • interest (not principal) on covered mortgage obligation,
  • covered rent obligation, and
  • covered utility payments, all as defined in the CARES Act.
• The amount forgiven may not exceed the principal amount of the loan.
• The amount of forgiveness is reduced by:
  • a formula tied to full-time equivalent employees during specific periods as elected by the borrower and
  • by amount of any reduction in total salary or wages of any employee during covered period in excess of 25% of total salary or wages during most recent full quarter during which EE was employed before the 8-week period beginning on the date of origination of the loan.
  • For loan forgiveness related sections, only consider employees who did not receive, during any single pay period during 2019, wages or salary at annualized rate of more than $100,000. Full-time equivalent employees do include tipped workers.
  • See CARES Act SBA Loan Programs FAQs for additional details.

Q:   How does loan forgiveness of a PPP loan work?

A:   

• Option 1:
  • Lender may request that the SBA purchase expected forgiveness of a PPP loan or pool of PPP loans at the end of week 7 of the covered period
  • Lender must submit a report to SBA including:
    • Original submitted PPP loan application and related materials
    • Detailed narrative explaining:
      • Assumptions in determining forgiveness amount, including any information obtained from the borrower
        • Payroll tax filings
        • Cancelled checks
        • Other payment receipts
      • Basis for these assumptions
      • Alternative assumptions considered and why disregarded
  • SBA will purchase within 15 days of receiving the report and finding that the expected forgiveness amount is reasonable
• Option 2:
  • Borrower applies to lender for loan forgiveness, including requirements set forth in the CARES Act.
  • Lender’s decision due to borrower within 60 days of application.
  • SBA to pay lender within 90 days of date of forgiveness, the amount equal to the amount of forgiveness plus interest accrued through the date of payment.
  • Advance purchase of expected forgiveness amount also available – following request, within 15 days SBA shall purchase the loan as if the loans were guaranteed under Section 7(a) of the SBA.
  • Lender to treat amount forgiven as cancelled indebtedness.
  • See CARES Act SBA Loan Programs FAQs for additional details.

Q:   What happens to amount of PPP loan not forgiven?

A:    If there is a remaining balance on the PPP loan after application of the loan forgiveness parameters (as discussed above), the remaining amount is guaranteed by the SBA and has a maturity of 2 years.