As discussed in yesterday’s Client Update, the Small Business Administration (SBA) issued its much anticipated regulation on the Payroll Protection Program (PPP) on Thursday evening – just hours before applications for PPP loans were to officially open for acceptance today.

A link to the SBA regulation, which they issued as an interim final rule, is provided below.

https://home.treasury.gov/system/files/136/PPP–IFRN%20FINAL.pdf

Although we are still studying all of the provisions of the rule, it appears clear that credit unions are indeed eligible to be lenders under the PPP program but, as we feared from the readings we had been receiving the last few days from our SBA and NCUA sources, credit unions are not allowed to borrow under the program. That is because credit unions and banks are excluded under the general SBA regulations from being a business that is primarily a lender and also to be a SBA borrower.

Over the course of last evening we were able to confirm that the attorneys at NAFCU, CUNA and NCUA share our interpretation of the SBA rule as it relates to the ineligibility of credit unions to apply as PPP borrowers.

We will continue to monitor the issue and further validate this interpretation if and when any additional clarity is provided in writing by SBA.

Until then, this Client Update provides you with the actual regulation you will need to have if you are going to proceed as a PPP lender.

Likewise, it provides valuable information for those commercial account members of your credit union who may be looking to apply for a PPP loan and need guidance.

While we are not claiming to be SBA experts and we recognize that those of you who are SBA approved lenders have other sources of guidance for your credit union’s SBA program, we did want to get this new rule into your hands as quickly as possible.

We feel that now the rule is finalized there should be much more guidance available to you from those already established sources of SBA expertise that you have.

With only four working days from the signing of the CARES Act and the beginning of application acceptance, you should expect that there is going to continue to be a great deal of confusion about the program. It may actually have a rough and tumble rollout beginning today as a result of the confusion.

However, this rule at least begins to provide some additional clarity.

We encourage you to read the rule through the link we have provided. This is word for word as it was approved by the SBA last evening.

Once you and your business lending/business services team have become familiar with its provisions, it would be advisable to reach out – sooner rather than later – to your SBA sources of expertise (who we expect to be naturally snowed under with such calls from your competitors) with your specific questions about the program from their understanding. Please get as much additional guidance as you can from them and do so as early as you can.

Feel free to share with us anything you learn that you think would benefit us in our consultative work on this matter. Nothing confidential, of course. But every credit union has access to different sources of information from SBA. If there are questions that you get answered that you feel your fellow credit unions would benefit by knowing, shoot us an email.

Everything with SBA and this PPP program has been seemingly in a state of flux with changes from hour to hour. That could yet be the case for another week or two until the rough edges of this rollout are smoothed.

In the meantime, we wanted to get the rule into your hands as early as possible this morning so that you can be able to proceed with your strategic and tactical decision on lending, applying to be a SBA lender, pricing the loans (which we call to your attention as having increased from a .50% APR to a 1.0% APR in this final rule) and making the asset-liability-liquidity management decisions necessary on the lending side for those of you who are approved SBA lenders and want to participate as lenders in the PPP program.

We will continue to monitor things with PPP and SBA, and we will let you know what we learn as fast as we learn it.

We’ll undoubtedly be expecting to write a few more Client Updates before the coronavirus era of social distancing comes to an end – hopefully, in the near future. Stay safe.

 

Until next time.