With Congress set to replenish the Paycheck Protection Program (PPP) funding this week, SBA 7(a) program lenders are urging lawmakers to clarify whether the traditional SBA 7(a) program will be forced to temporarily lapse once the PPP funds run out.
This ambiguity arises from the language used in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was signed into law on March 27, 2020, and which established the PPP. Rather than establishing an entirely new program, the CARES Act built the PPP on the existing SBA 7(a) loan program framework. The problem with this is that the CARES Act expressly stipulates that funding for the SBA 7(a) program, including loans made under PPP, is capped at $349 billion in temporary relief until June 30, 2020 — which is the day that the PPP expires.
As we have seen with the initial roll-out of the PPP, the $349 billion program was immediately exhausted in under two weeks, causing the combined program to temporarily lapse. Because funding for these two programs are now tied, the funds that were previously appropriated to the traditional SBA 7(a) program prior to the COVID-19 crisis are now also frozen until June 30, 2020, causing uncertainty among many SBA 7(a) lenders and potential SBA 7(a) small business recipients.
The latest stimulus bill, which was passed by the Senate this week, is expected to unfreeze funding (at least temporarily) for the combined program by adding an additional $310 billion to the PPP. The bill, however, does not address the potential lapse of the traditional SBA 7(a) program, which may occur once funds are extinguished again. If we have learned anything from the first round of funding, it is that the funds will not last long.
***Notice: Advice related to COVID-19 legislation is time-sensitive. Things are changing quickly and the aid measures and interpretations that may be described in this alert are subject to change.***
