Posts tagged ‘PPP loans’

Sole Proprietors Gain Meaningful Access to PPP Loans

Even as the clock keeps ticking closer to a March 31 deadline the SBA released new regulations yesterday making it easier for sole proprietors, persons convicted of nonfinancial crimes and persons with delinquent student loans to qualify for assistance.  The expanded eligibility only applies to individuals who have not previously obtained a PPP or Second Draw Loan.   Let’s hope that these well- intended but significant changes can be quickly and accurately integrated into lending platforms and that loans can get out the door without an accompanying surge of scams and waste. Better yet, let’s hope that Congress extends the deadline so that everyone can take a deep breath and administer the program properly.

IRS Form 1040 schedule C is the form used by sole proprietors. Previously, PPP rules defined payroll costs for individuals who file an IRS Form 1040, Schedule-C as payroll costs (if any employees exist) plus net profits, which is net earnings from self-employment.  The problem is that many of these entities are the smallest of small businesses with few if any employees and many are struggling to generate net income.  Furthermore many of these are minority and woman owned businesses that the Biden administration is targeting for relief. Under these new rules the term “income” as used in the definition of payroll costs for sole proprietors and independent contractors is expanded to encompass either borrower’s net income or a borrower’s gross income.

Depending on the size of the loan being requested, it may take longer for borrowers to get through the process.  A borrower applying for a typical PPP loan certifies the accuracy of his application and the SBA reserves the right to scrutinize applications in the future.  To guard against potential abuse under this expanded eligibility if a sole proprietor reports $150,000 or more on gross income when making a PPP application the SBA borrower will not automatically be deemed to have made the statutorily required certification concerning the necessity of the loan request in good faith, and the borrower may be subject to a review by SBA of its certification.

CFPB issues QM Patch Extension

 Yesterday the CFPB issued the regulations that have been anticipated for a while under which mortgages eligible for sale to Fannie Mae or Freddie Mac will continue to qualify as Qualified Mortgages under the CFPB’s TRID regulations.  This designation gives them added protection against borrowers contesting foreclosure actions.  The CFPB is also going ahead with new regulations permitting loans to qualify as QM loans provided their interest rates are comparable to similar mortgages.  For those of you who underwrite to secondary market standards, I have not seen any word from the GSE’s as to whether or not these new type of QM loans will be automatically eligible for purchase once I do, I will let you know.

March 4, 2021 at 9:44 am Leave a comment

Some Good News About This Lousy Pandemic

I actually found some good news to talk about regarding this lousy pandemic. 

First, the Treasury Department announced late last week that it was streamlining the loan forgiveness process for loans of $50,000 or less.  This is a lot less than the $150k that has been proposed in legislation advocated for by credit unions, but hey, it’s a start. 

The news that has really cheered me up a tad has to do with the American entrepreneurial spirit.  Despite all the uncertainty we see around us, it appears that it is alive and well.  Who knows?  Maybe the next Microsoft, Apple or Facebook is taking shape right now, perhaps with the help of a credit union loan. 

According to the Census Bureau, there’s been a 93.6% increase in the number of business applications compared to last year.  Furthermore, according to this survey, many of these entrepreneurs are first time business people, many of whom are trying their hand at businesses that have been hardest hit by the pandemic including restaurants and bars.    

Even allowing for the fact that some of this increase in entrepreneurial zest is attributable in part to a not so admirable attempt on the part of some to cash in on PPP loans, cynicism alone does not account for this increase.  As the Economist (subscription required) magazine pointed out recently “the entrepreneurial boom bodes well for the future.  A recovery with lots of start-ups tends to be more job rich than one without, since young firms typically seek to expand” at a quicker pace. 

For me, it’s just good to see that one of the core attributes of the American ethos remains alive and well.  Let’s not ever underestimate the value of small business loans and the importance of continuing to fight for the right of credit unions to provide them to the same extent as the local bank.     

October 13, 2020 at 9:17 am Leave a comment

Who Pays For PPP Loan Applications?

So much for Those Lazy, Hazy, Crazy Days Of Summer.

On Monday a Federal District court in Florida dismissed a lawsuit brought by an accounting firm which was seeking to force a bank to pay fees it claims it was owed for preparing a PPP application on behalf of one of the bank’s borrowers.  According to Law360, the case is the first to address this key issue.

When Congress created the PPP loan under the CARES Act, it stipulated that agents could assist businesses to apply for loans and stipulated further that payment for this work could not come out of the loan proceeds.  The issue which has vexed both lenders and agents alike is whether this means that lenders must pay agents for their work.  Several proposed class action lawsuits are now pending that address this issue.

In SPORT & WHEAT, CPA, PA, v. SERVISFIRST BANK, INC., et al., Judge T. Kent Wetherell, who sits on a Federal District Court in Florida, ruled in favor of lenders.

The CARES Act does not require lenders to pay the agent’s fees absent an agreement to do so (or create a private right of action for payment) because the statutory language does not even speak to who pays the agent’s fees; it merely provides that the agent cannot collect a fee from anyone in excess of the amount established by the SBA Administrator.

The outcome would have been different had the accounting firm signed an agreement directly with the bank, but it did not do so.

I know there are credit unions out there that have to decide whether or not to pay agent fees.  This represents the first round in what may become contentious and drawn out litigation.  Leave it up to Washington to explain who doesn’t have to pay a bill but not who does.

Things Are Not as Good As They Appear When it Comes to Mortgage Lending

The delinquency rate for one-to-four-unit residential properties increased to a rate of 8.22% of all loans outstanding at the end of the second quarter of 2020.  This represents a 3.8% increase of delinquencies this quarter.  According to the MBA, FHA loans were hit particularly hard, reaching their highest delinquency rate since the MBA started conducting the survey.   Presumably, these numbers do not reflect loans placed on forbearance but not reported to credit agencies.


August 19, 2020 at 9:48 am Leave a comment

Who Pays When an Agent Helps With a PPP Loan?

Good morning folks.  The Payment Protection Program (PPP) continues to be the government program that everyone loves to hate.  Even as Congress is being pressured to extend the program, which provides forgivable loans to small businesses which commit to keeping employees on payroll during the pandemic, the Small Business Administration (SBA) is being accused of exaggerating its effectiveness and banks and borrower agents continue to argue over who is responsible for agent fees.

This morning Reuters is reporting that Bank Of America has requested that the Trump Administration correct data which was released to demonstrate the value of the program.  In addition, thirty Democratic lawmakers have written a letter to the SBA in which they allege much of the data released about the impact of the PPP program has been “grossly incorrect”.

Meanwhile, back at the ranch, legal disputes involving PPP agent fees are spiking faster than New York places states on its travel ban list.  At issue is whether banks which provide PPP loans are obligated to pay the fees of agents who helped businesses process applications.

The CARES Act provides that “[a]n agent that assists an eligible recipient to prepare an application for a covered loan may not collect a fee in excess of the limits established by the Administrator.” 15 U.S.C. § 636(a)(36)(P)(ii).  The agents argue that the law and SBA regulations mandate that banks pay these fees.  The banks argue that they are only required to pay the agents if they agree to do so.  In testimony before Congress, Treasury Secretary Steven Mnuchin seemed to side with the banks, which is of course good news for credit unions which provided these loans.  However, regulations to clarify this issue have yet to be released and meanwhile litigation is continuing.

I am providing you a sample of a motion to dismiss, brought by Servisfirst Bank Inc., in Florida federal court, to give you a sense of some of the arguments being made.

These disputes could easily be resolved if the SBA were to issue more guidance or if Congress updates the PPP if and when it agrees to another round of pandemic legislation.

Yours truly is headed to the Adirondacks to show my oldest daughter what real camping is before she heads off to college.  I will reconnect with you a week from Monday.  In the meantime, thanks for reading the blog.


July 29, 2020 at 9:47 am 1 comment

SBA Statistics Provide Glimpse Into Credit Union PPP Participation  

Yours truly believes this is a crucial time for credit unions both large and small.  Pandemics come and go but legislators and the advocates who energize politics have long memories.  You can bet they are going to be asking if your credit union participated in the PPP.

The SBA released an updated breakdown of PPP lending through June 6th which provides at least a partial answer to this question.  For instance, it appears that the second round of the PPP has done a better job of getting smaller institutions involved in the program.  According to SBA statistics, as of June 6th, 721 credit unions with less than $1 billion in assets have made more than 57,000 loans worth close to $2.9 billion.  Unfortunately I can’t find any statistics breaking down the performance of credit unions with over $1 billion in assets.  It is also not clear to me if the credit union total includes CDFI credit unions.  Incidentally, CDFIs have made over 95,000 loans worth over $7 billion.

Looking at the big picture, California, Texas and New York companies lead the way in PPP loans and the lending program is being led by JPMorgan Chase which accounts for 4.3% of all loans being made.

If you look at the top 15 lenders, not surprisingly, the program is being dominated by larger regional banks many of which have an established comfort level with small business lending in general and SBA loans in particular.  Perhaps when things get back to the “new normal” one of the areas that can be examined is the perceived difficulty in making SBA loans and whether changes can be made to help credit unions and other small financial institutions develop a greater comfort level with the SBA.

When I say this type of thing to grizzled veterans they get a bemused look on their face and brace for me to start singing “kumbaya”.


June 9, 2020 at 9:16 am Leave a comment

Congress Passes Much Needed Improvements To The PPP  

Amidst all the mayhem that is enveloping the country, a funny thing is happening: Congress is acting in a bipartisan way to address the country’s most immediate economic problems.

Last night, the Senate approved H.R. 7010, which makes much needed changes to the PPP.  In a change that will be particularly helpful for businesses in the downstate area of New York, the percentage of a PPP loan which must be spent on payroll in order to be eligible for loan forgiveness has been reduced from 75% to 60%.  The Bill also gives businesses more flexibility to meet payroll obligations and still be eligible for forgiveness.   The time period for spending money under the bill is extended until December 31, 2020 and the period during which the loan must be repaid has also been extended.

What is not entirely clear is whether additional loans can be granted under the program after June 30, 2020.  According to press reports, in order to receive unanimous consent for a voice vote, Senate Majority Leader Mitch McConnell agreed to a letter being included in the Congressional record classifying that June 30th is the cut-off date for new loans.

The bill now must be signed by the President.

June 4, 2020 at 8:27 am Leave a comment

Powell to Congress: Spend More Now for a Stronger Economy Later

There are two questions we will know the answer to in about six weeks that will profoundly impact your credit union and its members.  The first question is how quickly can the country reopen for business without sparking a surge in COVID-19 cases?  The second question is how much additional stimulus does the country need?

Over the last week Federal Reserve Chairman Jerome Powell has made his answer to the second question abundantly clear; while the Fed has taken extraordinary steps to provide loans to banks, businesses and even municipalities, only Congress can give the country the economic lifeline it needs to not only get through the pandemic, but to make sure it comes back stronger next year.

The focus of his presentation has not simply been to explain the short term steps the Fed has taken but to stress that only Congress can spend money.  In a speech last week, Powell scrapped the maddeningly opaque language for which the Fed is known.  His concern is that without additional spending the economy could be in for an extended period of “low productivity growth and stagnant incomes”.  He went on to explain that “additional fiscal support could be costly but worth it if it helps to avoid long term economic damage and leaves us with a stronger economy”.

Just to make sure we didn’t miss the point, he reiterated many of the these same points in a 60 Minutes interview last night.  It will be interesting to see how big of an impact this media blitz has on legislators reluctant to spend another trillion dollars before assessing the economic impact of the fiscal stimulus already provided by Congress.

And let’s not forget the first question I asked; if the summer months bring about a second wave of COVID-19 cases, particularly in states not prepared to cope with a surge of hospitalizations, then none of these steps will be good enough to prevent what could become a Depression.

SBA Releases Borrower Forgiveness Form

Speaking of steps that Congress has already taken, the SBA over the weekend released the form to be used by borrowers seeking to have their PPP loans forgiven.  Hopefully, additional guidance will be coming shortly.


May 18, 2020 at 9:15 am Leave a comment

How Can PPP Borrowers Spend Their Loans?

The PPP can’t get a break. Now that at least some of the glitches involving lenders filing loans with the SBA have been addressed, there are increasing concerns that the program’s terms are too restrictive to help out some of the businesses it was designed to help. The result is that banks and credit unions participating in the program are being asked questions to which they cannot offer definite guidance and the SBA still faces a pressing need to clarify the intricacies of the program even as it is charged with getting more than half a trillion dollars out to the public in record time.

According to the New York Times, many small business owners are afraid to spend the money even after they get the loan. Under the program’s regulations, the PPP loans are completely forgivable provided 75% of the loans proceeds cover payroll costs and payroll is maintained. If those targets are missed then the PPP becomes a normal loan repayable with 1% interest. The article quotes business owners who are concerned that they may be violating the law depending on what they spend the money on if they decide to spend the money on expenses other than payroll.

In fairness to the SBA, this may be yet another example of overcautious legal interpretation as we all dive in to unchartered legal waters. Many of the small businesses interviewed have been advised by lawyers and accountants that they have the flexibility they need to spend the money where it can be of most use for their business. Then again, the same businesses were unable to get yes or no answers from the SBA.

Fortunately there is a simple solution to this problem. The SBA has it within its authority to either adjust the 75% requirement or clarify what small businesses are authorized to do with PPP money if they choose to forgo the 75% requirement. Hopefully it will take these steps quickly. After all, for many small businesses it makes more sense to invest these funds in ways that will keep the businesses viable rather than paying employees for whom they have no work and who are eligible for generous unemployment benefits.

In the meantime, if your members ask you how they can spend the money, I would instruct your staff to tell them that you are still waiting for an answer from the SBA.

May 4, 2020 at 9:42 am Leave a comment

Federal Reserve Gives Financial Institutions Greater Transaction Account Flexibility

Over the weekend, there were two important developments involving key operational issues facing credit unions.

First, the Federal Reserve Board issued regulations amending Regulation D. As a result, credit unions now have the explicit right to allow members to make more than six (6) monthly transactions in their savings accounts without having to worry about reclassifying them as transaction accounts.

The purpose of Regulation D is to discourage the excessive use of transaction accounts by making financial institutions put aside reserves equal to a percentage of their transaction accounts. About six weeks ago (have we really been in COVID-19 mode for that long already?) the Federal Reserve Board eliminated the reserve requirements but much confusion has remained about how much flexibility this gave financial institutions. The promulgation of this regulation removes any of this uncertainty.

It’s Alive!

It’s back and better than ever. President Trump signed legislation replenishing the PPP. That means that starting Monday morning at 10:30AM EDT, the SBA will once again be accepting loan applications. The legislation did not change any of the lending terms but press reports indicate that the Treasury is taking a closer look at larger businesses which applied for the loans. In this round, Congress set aside two (2) $30 billion pots as part of the overall appropriation specifically to be used by institutions with up to $10 billion in assets and those with between $10 and $50 billion in assets.



April 27, 2020 at 9:13 am Leave a comment

More Important PPP And Garnishment Developments You Need To Know About

Good morning folks.  It’s another one of those days when the tough part of doing the blog is deciding what NOT to put in, a task made all the more difficult because yours truly was not motivated enough to make himself a cup of coffee before heading down to the home office.  But here goes….

With the House expected to act on legislation replenishing the PPP, I wanted to highlight one thing Congress decided to do and one thing it decided not to do as part of the re-authorization.  Responding to criticism that the last round of funding went disproportionately to sophisticated businesses with existing business relationships to the largest banking institutions (I’m shocked), $30 billion is being set aside exclusively for credit unions and CDFIs with less than $10 billion in assets and another exclusive pool is being set aside for banks and credit unions with between $10 billion and $50 billion in assets.  Stay tuned for guidance from the SBA as to how this set-aside is going to work.

Meanwhile, if you’re still fretting over how to handle those stimulus checks, you are not alone.  In the “politics makes strange bedfellows” category, a coalition including the U.S. PIRG and the American Bankers Association sent a joint letter to Congress urging it to make stimulus checks exempt from garnishments.  As they explain in the letter,

Banks are obligated to comply with garnishment orders unless lifted by a court. Yet many consumers do not know that they may have a legal defense to those orders under state exemption laws or for other reasons, and the crisis has also made it difficult to impossible to access attorneys or the courts – presenting due process issues. The lack of clear, self-executing protection for the stimulus payments imposes a significant burden for some families facing unprecedented circumstances.

The legislation to be acted on by the House today does not clarify this issue so unless the Treasury feels empowered to independently offer its own guidance, we will continue to have to use our best judgment.  In states like New York, where the Attorney General has opined that it is illegal to garnish these funds, at the very least you now have a good faith basis for refusing to honor levy and restraint orders issued by third parties.

NCUA Grants Capital Relief To PPP Participants

NCUA followed the lead of the other financial regulators yesterday when it issued regulations granting capital relief for credit unions that make PPP loans.  Now pay attention here because this is one area where semantics make a huge difference.  Under existing regulations

 …a credit union is defined as “complex” if “[i]ts quarter-end total assets exceed fifty million dollars ($50,000,000); and . . . [i]ts [RBNW] requirement . . . exceeds six percent (6%).”

This is an existing obligation which is different from the enhanced risk-based capital requirements which take effect in 2022.  The interim rule grants PPP loans a zero percent risk rating for RBNW purposes.

Secondly, the Federal Reserve recently established a lending facility under which it will accept PPP loans as collateral for loans from Federal Reserve banks.  This collateral will also have a zero risk rating.

Last but not least, PPP loans are not going to be classified as commercial loans which provides you greater flexibility under your MBL cap.

That’s it folks!  Now I’m going to drink the tea my wife was kind enough to bring me.


April 23, 2020 at 8:33 am 1 comment

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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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