CUs must be approved SBA lenders for Paycheck Protection Program

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act providing an economic relief package in response to the COVID-19 pandemic. 

Included in the CARES Act is the Paycheck Protection Program (PPP), a $349 billion U.S. Small Business Administration-administered loan and loan forgiveness program directed at assisting job retention and easing business operating expenses. The PPP is designed to provide a direct incentive for small businesses to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses.

PPP Loan Details
If all employees are kept on payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest, or utilities. Up to 100 percent of the loan is forgivable. Businesses with fewer than 500 employees are eligible to apply. 
  
The PPP is created under section 7(a) of the Small Business Act. Credit unions currently approved as SBA 7(a) lenders may automatically offer this lending program. At this time, all other credit unions may apply to become an SBA 7(a) lender, but they must wait for approval before granting related loans. 
  
All federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions are eligible to process PPP loans after becoming an SBA 7(a) lender. 

Download a fact sheet from the IRS regarding PPP loans.

May Credit Unions Be Borrowers under the PPP?
Unfortunately, although the new program broadened the definition of businesses that may qualify for a loan by adding “nonprofits,” it appears to have limited coverage specifically to nonprofits under 501(C)(3) and (c)(19), neither of which include credit unions [federal credit unions are exempt under 501(c)(1) and state credit unions under 501(C)(14)]. 
   
"We expect additional guidance from the SBA this week that 'could' give a broader view of credit union eligibility," said Cornerstone Regulatory Compliance Counsel Suzanne Yashewski. "In addition, it’s possible that Treasury could modify the rule, or that this could be an 'ask' in the fourth round of stimulus being discussed."

Financial industry stakeholders have sent the SBA a joint letter requesting clarity. Cornerstone will provide an update once that additional guidance has been released.

QUESTIONS?
Please contact Cornerstone Regulatory and Compliance Counsel Suzanne Yashewski at 512-853-8516 or Associate Regulatory Compliance Counsel Nathan Behncke at 512-853-8514. Alternatively, don't hesitate to call our Information Central Hotline with questions regarding the latest regulatory and compliance guidance, business continuity and staff considerations, and more.

Information Central
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