The Small Business Administration modified guidelines for its Paycheck Protection Program in order to encourage community banks to participate in the program.
The PPP, which will provide $349 billion in capital to small businesses as part of the national stimulus program, initially announced that the loans will be made for two years at a 0.5 fixed interest rate. The interim plan changed the fixed interest rate to 1 percent in response to feedback that the terms could prevent community banks involvement.
The American Bankers Association contacted the Treasury and the SBA after the CARES Act was passed to share feedback from state associations and bankers.
“Now that the SBA and Treasury have shared key implementation details and made important changes to the program, I expect banks of all sizes will participate and provide this important financial lifeline to small business customers,” said Rob Nichols, ABA president and CEO.
The interim rule offered clarity to underwriting expectations, which are limited to the application form and the certifications in it, the borrower’s payroll documentation and applicable Bank Secrecy Act Requirements. Lenders may rely on borrower documentation for loan forgiveness, providing greater protection for lenders if borrowers misrepresent information in their application.
“The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs,” the rule said. The SBA won’t penalize any lender who relies on such borrower documents and attestation from a borrower.
After seven weeks, lenders can ask that the SBA purchase the expected forgiveness amount of PPP loans. These requests can be submitted in advance, and the SBA will purchase the expected forgiveness amount of the loan within 15 days after it receives a complete report.
Banks already certified by the SBA as 7(a) lenders may start approving loan applications with delegated authority by April 3. The interim rule said that banks not currently in a troubled condition will be automatically qualified to make loans with delegated authority once they submit the required documentation to the SBA.
“America’s banks are already assisting their small business customers across the country, and they stand ready to work in partnership with the federal government to get these new funds to small businesses as quickly as possible,” Nichols said.
After the initial guidelines were released, the Independent Community Bankers of America also appealed to the Treasury and SBA about the program not empowering all community banks to participate and meet small-business demand.
The ICBA, in a letter to the agencies about the PPP guidelines, raised concerns that the interest rate being below break-even for community banks, the two-year loan terms being too short, the guidelines on the use of loan proceeds being too restrictive, and the lack of detailed guidance shifting too much liability to the lender. The ICBA also suggested the SBA and Treasury create a liquidity facility for community banks offering PPP loans.
The ICBA staff addressed the PPP and other aspects of the federal response to the crisis at a community bank briefing on April 3 at 10 a.m. C.T