Paycheck Protection Program Underscores Vital Role for Lenders

March 30, 2020 at 9:23 am 1 comment

Now that Congress has passed and President Trump has signed the Coronavirus Aid, Relief, and Economic Security Act (H.R. 748), also known as the CARES Act, the focus shifts to compliance professionals. Regulations that would normally be proposed months from now will be released in the coming days and frameworks that would be implemented over a year and one-half must be put in place within days and weeks. The extent to which lenders can swiftly provide relief to members and businesses will largely determine how effective this $1.7 trillion measure is in keeping the economy from further disintegrating and may very well shape your members’ view of your credit union for years to come.

Of all the initiatives tucked away in the bill, the most original is the paycheck protection program, which can be found in Title 1, §1101 et sec. Generally speaking, the traditional §7(a) program extends loans to small businesses. The lenders are certified to make the loans by the Small Business Administration (SBA) and the SBA guarantees some but not all of the loan. The process to become an SBA lender can be challenging; credit union participation has historically been anemic, but some of our larger institutions actively participate.

This Act amends §7(a) of the Small Business Act to authorize SBA lenders to offer business loans for the period February 20, 2020 to June 20, 2020. These loans could be used to cover payroll costs, a term which is defined broadly to include traditional salaries and benefits as well as tips, commissions and family and medical leave. It can also be used to cover rent and lease costs, utilities, and the interest on debt obligations. The program also expands eligibility for these loans to include non-profit organizations, veterans’ organizations and tribal businesses that meet certain criteria, and even includes sole proprietors. Under this amendment, the SBA will cover 100% of the loans. There is also language permitting the SBA to fast track the approval of eligible lenders.

Although additional regulations have to promulgated, the statute underscores just how quickly Congress wants these loans to be processed. Applicants will have to certify 1) that the uncertainty of the economic conditions make the loan necessary; 2) that the loans will be used to maintain workers, provide payroll and mortgage payments on the business; 3) that it is not applying for duplicate loans; and 4) that is has not already received loans under this program.

The bill includes language that may fast track the number of eligible lenders qualified to participate, but my guess is that for many credit unions the competing demands brought on by the COVID-19 pandemic will make participation difficult.   Still, credit unions can all expect to get phone calls from small businesses throughout their communities today.

Entry filed under: Economy. Tags: , , , , .

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1 Comment Add your own

  • 1. Jim Martinez  |  March 30, 2020 at 10:11 am


    I’m wondering if small credit unions will be able to borrow under the program. We’re small (limited number of employees) and not-for-profit (not to mention-essential😊).


    James M. Martinez
    Tri State Area FCU
    N.M.L.S. # 791990
    (518) 686-4504
    (518) 686-7685 (fax)

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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