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 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

On August 23, 2019, President Donald Trump signed into law the Small Business Reorganization Act of 2019 (SBR Act), which became effective last month. On March 27, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 global pandemic. New subchapter V under chapter 11 of the US Bankruptcy Code eliminates some of the more costly elements of traditional chapter 11 relief, such as disclosure statements, and in some ways is modeled after expedited procedures used in chapter 12 and 13 cases. Subchapter V was designed to promote simplicity and efficiency for reorganization of small-business debtors. The CARES Act temporarily raises the eligibility debt ceiling from $2,725,625 to $7,500,000 for new cases filed between March 28, 2020, and March 27, 2021. A permanent change to the SBR Act made by the CARES Act is the elimination of eligibility to file for subchapter V relief for any affiliate of a public company.

Continue Reading Temporary and Permanent Changes Made to the New Small Business Reorganization Act of 2019 as a Result of the Coronavirus Aid, Relief, and Economic Security Act Enacted March 27

Title IV of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) passed by Congress on March 27, 2020 provides significant, although temporary, regulatory relief to banks, savings institutions and their customers.

The key bank regulatory relief provisions of the CARES Act are the following:

  • Grant of Authority to FDIC for Unlimited Guarantee of