Friday, April 3, 2020
Quick Guidance for Lenders – Review of SBA Interim Rule Paycheck Protection Program & Frequently Asked Questions

The Small Business Administration last night (Thursday, April 2, 2020)  issued an interim final rule  that provides additional implementation guidelines and requirements for its Paycheck Protection Program to aid small businesses hit hard by the COVID-19 crisis.
Are Lenders protected in relying on self certifications by borrowers?
Yes, provided that a lender complies with the provisions of the rule, it will be held harmless for borrowers’ failure to comply with program criteria.

What is the interest rate on a PPP loan?
The rate on all PPP loans will be 1.00 percent

What is the maturity date on a PPP loan? 
Each loan will mature in 2 years.

Can we use e-signature?
Yes.

How will funding be made available and allocated? 
SBA guarantees up to $349B will be on a first come first served basis.

What forms do I need and how do I submit an application? 
Each applicant will submit SBA Form 2483 (Paycheck Protection Program Application Form), and the following payroll documentation: 
  • For employers, this includes “payroll processor records, payroll tax filings”
  • For independent contractors, this includes Form 1099-MISC
  • Lenders shall submit SBA Form 2484 (Paycheck Protection Program Lender’s Application for 7(a) Loan Guaranty) with each loan application

NOTE:  The borrower loan application has changed since the one issued on April 1.  

Lenders should ensure that their borrower has completed the correct form.

All forms are submitted electronically. 

Which lenders may participate? 
All existing SBA 7(a) lenders are eligible and automatically approved.

Other eligible institutions:
  • Federally insured depository institutions 
  • Federally insured credit unions
  • Any farm credit system institution
  • Any other depository or non-depository financing provider that originates, maintains and services business loans or other commercial financial receivables,  has a formalized compliance program and applies BSA requirements, has been in operation since February 15, and has originated more than $50 M in loans during any consecutive 12 months in the past 3 years.

ALL eligible institutions described above are automatically qualified under delegated authority upon transmission of SBA Form 3506.

The following institutions are  not eligible to participate: 
  • Any institution currently designated in trouble condition by its primary federal regulator (PFR); 
  • Any institution that is subject to a formal enforcement action by its PFR “that addresses unsafe and unsound lending practices.”

What underwriting requirements are imposed on lenders?
Each lender shall:
  • Confirm receipt of borrower certifications contained in the PPP application
  • 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 -  this should include payroll processor records, payroll tax filings and Form 1099 (as applicable)
  • 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 -  PPP loans for existing customers will not require reverification under applicable BSA requirements, UNLESS otherwise indicated under the bank’s risk-based approach to BSA compliance.

Each lender's underwriting obligation under the PPP is limited to the items listed above and “reviewing” the PPP application. 

The rule also expressly provides that lenders are permitted to rely on certifications of the borrower in order to determine eligibility of the borrower and the use of loan proceeds.

Can lenders rely on borrower documentation for loan forgiveness?
YES.  The lender does not need to conduct any verification if the borrower submits documentation supporting its request for forgiveness and attests that it has accurately verified the payments for eligible costs. 
Disclaimer:  The information included here is provided for general informational purposes only and should not be a substitute for legal advice nor is it intended to be a substitute for legal counsel. For more information or if you have further questions, please contact one of our  Attorneys.
Application of $100,000 cap on compensation

In defining “payroll costs” the CARES Act refers to “any compensation to employees that is” salaries,
wages, health care benefits, retirement benefits, etc.
  • So ALL of those things are deemed to be “compensation”

The interim rule (example on page 8) – states that you subtract “any compensation paid to an employee in excess of an annual salary of $100,000.”

My read is that the $100k is a cap on TOTAL comp for any employee. The only angle you could argue otherwise would be to say that benefits, for example, are not “paid to” an employee – which I do not believe to be a correct interpretation.

Eligibility of certain entities

Banks are not eligible for a PPP loan.

The treatment of Churches is less clear. The regulation cited in the rule excludes “businesses principally
engaged in teaching, instructing . . . religion or religious beliefs.” A Church is arguably not a business for
this purpose. The CARES Act then authorizes participation by nonprofit corporations described in Section 501(c)(3) – which would include a Church.

Payments to Independent Contractors

An applicant may NOT include any payments to independent contractors in determining payroll costs.

“Gross” v. “Net” Payroll Calculation

Federal taxes (payroll and income tax withholdings) can be included in determining payroll until the period beginning February 15, 2020.

For most borrowers determining their average monthly payroll, they would use a gross payroll calculation for the period April 1, 2019, through February 15, 2020, and a net payroll calculation for the period February 15, 2020, through March 31, 2020.

Beginning of 8-week covered period

The rule refers to the 8-week covered period as “following the date of the loan." I interpret this to be the date on which the loan is closed.

Use of PPP loan funds for non-payroll costs

The provision that not more than 25% of loan proceeds be used for non-payroll uses is now a condition for forgiveness (not simply a certification that it is “anticipated” by the borrower).

Robert T. Smith  heads the Finance and Commercial Transactions Practice Group.His diverse corporate practice focuses on representing companies and financial institutions in general business, transactional, securities and regulatory matters. 


















About the Firm

Friday, Eldredge & Clark, LLP serves business, non-profit, governmental and individual clients in Arkansas and across the United States. It is one of the oldest law firms in the state and has been the largest Arkansas-based law firm for more than 50 years. The firm has practice areas focusing on General Litigation; Class Action and Business Litigation; Railroad; Labor and Employment; Medical Malpractice; Public Finance; Healthcare; Estate Planning and Probate; Employee Benefits; Real Estate and Commercial Transactions; and Merger and Acquisitions. Friday, Eldredge & Clark has offices in Little Rock, Fayetteville and Rogers, Arkansas.

For more information, visit  www.fridayfirm.com.