On Friday, May 22, 2020, the Small Business Administration (SBA) released two new Interim Final Rules (collectively, the Rules) governing Paycheck Protection Program (PPP) loans: (1) the Loan Forgiveness Requirements (Forgiveness Rule) and (2) the SBA Loan Review Procedures and Related Borrower and Lender Responsibilities (Lender Responsibility Rule). These Rules provide lenders of PPP loans (Lenders) some of the first clear answers on their responsibilities with respect to processing PPP Loan Forgiveness Applications, and it is fair to say that those responsibilities likely exceeded what many Lenders expected, much less desired. This memorandum summarizes the requirements and procedures the new Rules place on Lenders for reviewing PPP loans and Loan Forgiveness Applications, and suggests some unanswered questions raised by them.Continue Reading New Interim Final Rule on SBA Loan Review Procedures and Related Lender Responsibilities Regarding the Paycheck Protection Program
The Paycheck Protection Program (PPP) presents various risks to banks, including litigation from customers, prospective customers, and third parties, as well as enforcement actions from the government and bank regulatory agencies.
An analysis of the several dozen lawsuits filed in the months after the enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act reveals that PPP litigation is trending in five preliminary categories: PPP eligibility restrictions, PPP loan prioritization, agent fees, default on debt, and False Claims Act, each detailed below with other litigation risks.
The PPP also presents regulatory risk to banks, including but not limited to nonpayment of guarantee by the US Small Business Administration (SBA), fair lending risk, Bank Secrecy Act (BSA) compliance risk, and PPP compliance risk, each detailed below.Continue Reading Litigation and Regulatory Risks to Banks from Paycheck Protection Program
On Thursday, April 23, the Small Business Administration (SBA) and United States Department of Treasury released a new question 31 and related answer as a supplement to the Paycheck Protection Program (PPP) Loan Frequently Asked Questions (FAQs), which they previously published and have periodically updated since the program began. The recent addition, which is quoted below, appears to us to demonstrate the effects that public pressure is having on the SBA following the inability of a number of small businesses to participate in the first round of PPP funding:
Continue Reading Updated FAQ Issued Regarding the Paycheck Protection Program and Qualification for Loans
On Friday, April 3, we posted that under the Interim Final Rule issued by the Small Business Administration (SBA) on April 2, businesses owned by an officer, director, key employee, or 20% or more shareholders of a lender are not eligible for a Paycheck Protection Program (PPP) loan from that lender. As noted at the top of page 8 of the Interim Final Rule, “[b]usinesses that are not eligible for PPP loans are identified in 13 CFR 120.110.” Section 120.110(o) says “[b]usinesses in which the Lender . . . or any of its Associates owns an equity interest” are ineligible. “Associate” of a lender is defined in 13 CFR § 120.10(1) as “[a]n officer, director, key employee, or holder of 20 percent or more of the value of the Lender’s . . . stock.” Thus, any business in which any one of those types of individuals owns any equity interest would be disqualified from a PPP loan made by that lender.
Continue Reading Restriction on PPP Loans to Insiders and Their Close Relatives
We wanted to make you aware that under the Interim Final Rule issued by the SBA yesterday, businesses that are not eligible for Payroll Protection Program (“PPP”) loan guaranties are identified in 13 C.F.R. 120.110 and SOP50 10. Under those guidelines, businesses of which a Lender or any of its Associates owns a financial or…
In response to the coronavirus (COVID-19) outbreak, the Federal Financial Institutions Examination Council (FFIEC) updated its 2007 Interagency Statement on Pandemic Planning to provide guidance to financial institutions on actions they can take to mitigate the potential adverse effects of a pandemic to their operations. It requires financial institutions to have plans in place that…