SBA Lending Under the CARES Act: New Paycheck Protection Program, Expanded Disaster Loans, Loan Forgiveness

Description

On Mar. 27, 2020, the President signed the CARES Act into law and the Paycheck Protection Program and Health Care Enhancement Act (the PPP Enhancement Act) is pending. The CARES Act includes several provisions of significance for SBA lenders and borrowers affected by COVID-19.

The PPP provides short-term federally guaranteed loans for eligible small businesses with no more than 500 employees (or more, depending on the NAICS code of a business), sole proprietors, independent contractors, and self-employed individuals who apply by June 30, 2020. Initial borrower applications far exceeded the initial $349 billion of funding. The pending PPP Enhancement Act expands eligible PPP borrowers, and authorizes an additional $310 billion of PPP loans with $30 billion allocated for PPP loans by community banks, and another $30 billion for regional banks.

There are complex considerations when making or taking PPP Loans. Borrowers will be eligible for loan forgiveness of up to eight weeks of payroll costs, interest on mortgage payments, rent payments, or utility payments, but it is important that borrowers thoroughly understand the limitations placed and specific record-keeping and reporting requirements apply. Banks need to navigate ever changing guidance related to the PPP, borrowings under the new Federal Reserve PPP Liquidity Facility and how to process PPP loan forgiveness. Importantly, amounts forgiven will not be taxable income to the borrower.

The CARES Act also expanded the Economic Injury Disaster Loan (EIDL) program to include sole proprietors, independent contractors, nonprofits, tribal businesses, and ESOPs with fewer than 500 employees. The PPP Enhancement Act provides $50 billion more for Economic Injury Disaster Loans (EIDLs) under section 7(b) of the Small Business Act and an additional $10 billion for Emergency EIDL Grants authorized under the CARES Act. The Act also provides for payment deferrals and payment subsidies for certain 7(a) loans (excluding PPP), loans made by intermediaries under Title V of the Small Business Investment Act, and loans made under Section 7(m) of the SBA Act.

Listen as our authoritative panel discusses these and other initiatives authorized under the CARES Act, including new eligibility requirements for borrowers and the closing and servicing issues presented for SBA lenders under these programs.