Letters to Credit Unions 20-CU-06 Loan Programs to Help Small Businesses and Members During the COVID-19 Pandemic
NCUA’s LTCU 20-CU-06 provides credit unions information on the SBA’s Payroll Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program. SBA has issued an interim final rule outlining the PPP effective upon publication in the Federal Register and open for public comment for 30 days after publication.
Small businesses may apply for PPP loans beginning 4/3/2020 and independent contractors/self-employed individuals may apply beginning 4/10/2020. Borrowers may apply through 6/30/202 or until all available PPP funds are exhausted.
NCUA asserts the agency will not criticize credit unions that make a good faith effort to administer the SBA programs to assist members in a prudent manner.
Paycheck Protection Program
Although the PPP will be administered by the SBA’s 7(a) loan program, there are several substantive differences between PPP and traditional 7(a) loans:
- Unlike a 7(a) loan, PPP loans are 100% guaranteed (as such, the loans do not count toward the commercial loan cap)
- The full principal amount of a PPP loan may qualify for loan forgiveness
- PPP loans may be as large as $10 million (twice the amount of a 7(a) loan)
- PPP loans will be available to eligible borrowers on a first-come/first-served basis
- Lenders must comply with the applicable lender obligations set forth in the interim final rule but will be held harmless for any borrower’s failure to comply with program criteria
- Lender Eligibility Criteria
current SBA 7(a) lenders are automatically approved to make PPP loans. Other FICUs may apply to lend under the PPP by submitting a CARES Act Section 1102 Lender Agreement and will be automatically approved to participate so long as they are not in troubled condition or under enforcement action. The SBA’s interim rules also have qualification procedures for CUSOs to make loans.
Note: “Financial businesses primarily engaged in the business of lending…” cannot borrow under the PPP due to SBA regulations.
- Loan Terms
Differences in loan terms, conditions, processes and guarantees between PPP and other 7(a) loans include:
|Loan Amount||Maximum PPP loan amount is $10 million|
|Majority||PPP loan maturity is 2 years|
|Repayment||PPP repayment commences 6 months from the date of disbursement|
|Lender Guarantee||PPP guarantee is 100%|
|Collateral||No PPP collateral is required|
|Interest Rate||PPP interest rate is 100 basis points or 1%|
|PPP loans will be processed by all lenders under delegated authority and lenders are permitted to rely on borrower certifications to determine borrower eligibility and the use of loan proceeds|
|Personal Guarantee||PPP does not require borrower’s personal guarantee|
- Processing: Loan Forgiveness
Loan forgiveness under the PPP can include the full principal amount as well as accrued interest. The forgiveness is subject to limitations on use of funds and conditions in the SBA’s interim rule. The SBA will also be issuing additional guidance on loan forgiveness in the future.
Lender compensation from the SBA for processing PPP loans will be based on loan balance outstanding at the time of final disbursement:
|Loans $350k and less||5%|
|Loans Greater than $350k up to $2 m||3%|
|Loans Greater than $2m||1%|
COVID-19 Economic Injury Disaster Loans
Small businesses affected by COVID-19 may also be eligible for additional assistance through the SBA’s Economic Injury Disaster Loan. These loans can be up to $10,000 and do not have to be repaid.