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The Paycheck Protection program is here! Learn how to successfully guide your clients through the application, underwriting and closing process with our helpful guide.
Whether you’re a long-time SBA lender or joining the program to help rescue a small business and their staff, let’s face it—the Paycheck Protection Program (PPP) can seem overwhelming. Why? It’s brand-new. You can rest assured that every participant is on equal footing as this historic loan program is a first-time experience for every lender.
How do we simplify this daunting process for you as the lender? We’re all familiar with a field guide, perhaps we’ve used one a time or two. And just as we use a map to make our way through uncharted territory and mark important destinations along the way; what better way to break down various components and (still pending) processes of the Paycheck Protection Program than with step-by-step directions? Here we’ve curated resources and provided a field guide your success in implementing the PPP at your financial institution.
Prudent Lenders is an SBA Lender Service Provider (LSP). We intend to provide lenders across the U.S. with practical resources about the PPP—and not be a bottleneck. To elevate our industry to the challenge, we believe lenders need to unify together and lift where they stand. Our goal at Prudent Lenders is to assist you in serving your individual clients, regions and communities. With this goal in mind, we’re openly sharing our field guide for your success.
Like you, we have questions that require answers. As answers from authorized sources are made available, we’ll continue to provide updates to our guide. And, as always, our promise is this: We’ll provide you with credible information straight from the source and not deal in rumor or opinion. We invite you to bookmark our site and come back for updates as they’re made available by the SBA and Treasury.
As ever, we remain your partners in developing wise financial strategies for your clients, and for the sake of all our communities.
Please note that legally we must state: Lenders remain solely responsible for exercising day-to-day responsibility for evaluating, processing, closing, disbursing, servicing, liquidating and litigating its SBA PPP portfolio. As a loan service provider, Prudent Lenders is providing this information to help you as the Lender navigate through the daily changes in this unprecedented time. The Lender bears full responsibility for all aspects of its SBA Lending in accordance with the SBA.
Friends, be safe and stay healthy!
Bryan Doxford
President & CEO
The Paycheck Protection Program (PPP) provides coronavirus, COVID-19 related relief to small business owners by allowing them to borrow up to 2.5 times their average monthly payroll costs. These funds should be used to cover payroll cost; costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; mortgage interest payments (but not mortgage prepayments or principal payments); rent payments; utility payments; interest payments on any other debt obligations that were incurred before February 15, 2020; and/or refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.
Interest rates and fees are structured to help businesses get back up on their feet during this uncertain time. Rates are set at 1% fixed for the life of the loan and there are no fees.
Prudent Lenders will provide instructions for business owners to maximize the debt forgiveness feature while allowing lenders to get loans off their books.
What is the purpose of the Paycheck Protection Program?
As some point, the U.S. will find stability in the wake of the COVID-19 pandemic. When that times comes, experts suggest there will be pent-up demand for the goods and services that small businesses provide. When America “reopens,” funds made available through PPP will ensure businesses still literally have their lights still on and are fully staffed.
You can view full details of the CARES Act (under which the PPP program falls) here.
- The applying small business must complete a borrower application.
- For each borrower application, a lender must complete an accompanying lender application.
Primary Borrower Information:
- On calculating payroll:
- For purposes of calculating “Average Monthly Payroll,” most Applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee. For seasonal businesses, the Applicant may elect to instead use average monthly payroll for the time period between February 15, 2019 and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee.
- Applicant must certify the information provided in their application and the information provided in all supporting documents and forms is true and accurate in all material respects.
- Use of funds:
- If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.
Primary Lender Information:
- On calculating loan amounts:
- Applicant must provide documentation to Lender supporting how the loan amount was calculated in accordance with the Paycheck Protection Program Rule and the CARES Act, and Lender must retain all such supporting documentation in Lender’s file.
- Lender must certify it has obtained and reviewed the required application (including documents demonstrating qualifying payroll amounts) of the Applicant and will retain copies of such documents in the Applicant’s loan file.
- Indemnification:
- Lenders must comply with the applicable lender obligations set forth in the interim final rule but will held harmless for borrowers’ failure to comply with program criteria.
- All PPP loans are processed by all lenders under delegated authority from SBA.
Primary Loan Terms & Program Facts:
- The guarantee percentage is 100%
- No collateral is required
- No personal guarantees are required
- The interest rate is 100 basis points or one percent
- Loan maturity is (now) 5 years, no prepayment penalty
- Any pre-existing loans may amend their notes to reflect new terms (going from 2 to 5 years).
- Borrowers do not have to make any payments for ten months after the end of the borrower’s 8 or 24-week loan use (or “spend”) period. following the date of loan disbursement.
- All loans will be processed by all lenders under delegated authority, and lenders will be permitted to rely on certifications of the borrower in order to determine eligibility of the borrower and the use of loan proceeds.
Helpful Tips:
- Begin the application process with the end in mind. The ideal end, in most cases, is maximum loan forgiveness (ideally the entire loan). Forgiveness is based on the applicant maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease.
- After disbursement of the loan, a borrower is eligible for loan forgiveness on up to eight weeks of covered expenses. At least 60% of the loan proceeds are to be used for payroll to ensure forgiveness.
- A borrower will apply to a lender by submitting all relevant paperwork, at which time a lender will have up to (60) sixty days to approve or deny the application. Lenders can rely on borrower documentation for loan forgiveness. If the loan forgiveness application is approved, that portion of a borrower’s loan is forgiven; and SBA will pay the lender the part of the principal amount plus interest.
- SBA Franchise Directory (For applicants who are franchise owners)
- All PPP loans need to be enrolled with the SBA. Lenders will need access to the SBA’s Capital Access Financial Systems (CAFS) to complete enrollment. CAFS is the portal to E-Tran where loans must be registered.
- Each lending organization is given a user account. Each user account requires an institutional level Authorizing Official (AO) to be linked to their system profile. The AO oversees system-related issues and is the primary contact for the account. AOs also are responsible for bi-annual re-certifying (verifying users and role permissions) of their accounts.
- Once access to CAFS has been established, each PPP loan will need to be enrolled. All lenders participating in the PPP will have delegated authority (read: One need not obtain the SBA’s approval of a loan, the approval decision is delegated to the lender).
- When entering information in E-Tran, a lender need only enter information collected on the application. As the PPP application is abbreviated, some fields will not be applicable in E-Tran (including financial data fields).
Frequently Asked Questions – Accessing CAFS:
- Login to an existing CAFS account here
- To create a new CAFS account here
- AO Registration Instructions
- Non-AO Registration Instructions
- E-Tran PPT
- CAFS Instructions
- Customer Service Questions: 1.833.572.0502 or CLS@sba.gov
Helpful Tips:
- For business continuity purposes, we suggest a lender have more than one user on CAFS.
- Lenders are encouraged to upload to E-Tran: SBA Form 2483; SBA Form 2484; and payroll documentation (provided by the applicant).
- A lender does not need a separate SBA Authorization for SBA to guarantee a PPP loan. However, lenders must have executed SBA Form 2484 (the Lender Application Form for the Paycheck Protection Program) to issue PPP loans and receive a loan number for each originated PPP loan.
- Loans should be funded within 10 calendar days of receiving an approval number from E-Tran.
- If the lender needs to adjust a loan after it has been approved, they must do so in E-Tran prior to closing, especially if they are changing the loan amount. This will ensure funds are available and reserved for the borrower. Loan cancellations need to occur in E-Tran, too.
- The SBA provided a promissory note form for use with PPP loans, accessible here.
Note: Lenders do not have to use the SBA’s note. It includes language on “collateral” and “guarantor” that are not applicable to PPP (and may add unnecessary confusion for an applicant).
- As an alternative to using the SBA’s note, lenders may use their own note and closing documents for PPP. Lenders that select this option must ensure the note is legally enforceable and assignable; has a stated maturity; and is not payable on demand. In addition, the note must include the following language:
“When SBA is the holder, this Note will be interpreted and enforced under Federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any Federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt Federal law.”
Per the SBA: Lenders may include in their promissory notes for PPP loans any terms and conditions, including relating to amortization and disclosure, that are not inconsistent with Sections 1102 and 1106 of the CARES Act, the PPP Interim Final Rule and guidance, and SBA Form 2484.
For lenders that use their own note, we recommend stating the repayment language as similarly to the way the SBA states it in traditional 7(a) Loans, such as:
Payment Terms
Borrower will make all payments by automatic debit from the Borrower’s operating account, or at such other place or in such manner as the Lender designates. The payment terms for this Note are:
Initial Deferment Period: No payments are due on this loan for ten (10) months after the end of the Borrower’s 24-week loan use (or “spend”) period. Interest will continue to accrue during the deferment period.
Loan Forgiveness: Borrower may apply to Lender for forgiveness of the amount due on this loan in an amount equal to the sum of the following costs incurred by Borrower during the twenty-four (24)-week period beginning on the date of first disbursement of this loan:
- Payroll costs
- Any payment of interest on a covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation)
- Any payment on a covered rent obligation
- Any covered utility payment
- Other costs deemed eligible by SBA
The amount of loan forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (P.L. 116-136). Not more than 40% of the amount forgiven can be attributable to non-payroll costs.
If the Borrower has received an SBA Economic Injury Disaster Loan (EIDL) advance in the amount of $____________, that amount shall be subtracted from the loan forgiveness amount.
Repayment Terms: The interest rate on this Note is one (1%) percent per year. The interest rate is fixed and will not be changed during the life of the loan. On the date of this Note, interest shall begin accruing.
Beginning on the first day of the eleventh (11th) month on or after the ten-month anniversary of the date of this Note, the Borrower shall pay equal monthly installments of principal and interest on the principal balance remaining as due and owing after any Loan Forgiveness in accordance with an amortization schedule.
Lender will apply each installment payment first to pay interest accrued to the day Lender received the payment, then to bring principal current, and will apply any remaining balance to reduce principal.
In addition, the entire unpaid principal balance hereof, together with accrued interest thereon and accrued late charges, if any, shall be finally due and payable first day of the sixty (60th) month anniversary of the date of this Note.
Maturity: This Note will mature five (5) years from date of first disbursement of this loan.
Loan Prepayment: Borrower may prepay this Note at any time without penalty.
- SBA released has updated the loan forgiveness application for borrowers. It’s available in both a full and “EZ” version. Instructions are also available: full application instructions / EZ application instructions
- The SBA has not yet provided comprehensive instructions for processing loan forgiveness for Lenders.
- This section will be updated as additional information is provided.
- PPP loans will be reported through Colson’s dashboard.
- There is a PPP-specific 1502 report template.
- Reports should be prepared following instructions within this Procedural Notice (see pages 4 & 5). Follow the instructions exactly. Do not add extra sheets or columns to the template. Add rows, as needed, to include all of your PPP loans on one report.
- Ongoing reporting is detailed on page 8 of the Notice.
Could I be ineligible even if I meet the eligibility requirements?
How do I determine if I am ineligible?
I have determined that I am eligible. How much can I borrow?
How do I calculate the maximum amount I can borrow?
What qualifies as “payroll costs?”
Is there anything that is expressly excluded from the definition of payroll costs?
Do independent contractors count as employees for purposes of PPP loan calculations?
What is the interest rate on a PPP loan?
What will be the maturity date on a PPP loan?
Can I apply for more than one PPP loan?
Can I use e-signatures or e-consents if a borrower has multiple owners?
Is the PPP “first-come, first-served?”
When will I have to begin paying principal and interest on my PPP loan?
Can my PPP loan be forgiven in whole or in part?
Do independent contractors count as employees for purposes of PPP loan forgiveness?
What forms do I need and how do I submit an application?
The questions below come from a third Interim Final Rule (IFR). This IFR provides additional guidance that addresses a few of the questions that have been raised by lenders, including questions regarding individuals with self-employment income.
I have income from self-employment and file a Form 1040, Schedule C. Am I eligible for a PPP Loan?
How do I calculate the maximum amount I can borrow and what documentation is required?
Are there any other restrictions on how I can use PPP loan proceeds?
What amounts shall be eligible for forgiveness?
What documentation will I be required to submit to my lender with my request for loan forgiveness?
Are businesses that receive revenue from legal gaming eligible for a PPP Loan?
No one is an expert on PPP. However, there are resources being updated in real time that allow us to learn on the job.
- Treasury – Paycheck Protection Program website (There are several Interim Final Rulings. All are available on the Treasury’s site.)
- SBA Franchise Directory
- U.S. Treasury has this site for FAQs. We strongly encourage lenders to review it daily.
- What is a lender service provider (LSP)?
If you have questions about the PPP, the following email contacts are available:
- 7aPaycheckLoanProgramQuestions@sba.gov (For questions on the PPP)
- PPP-IFR@sba.gov (For questions on the Interim Final Rule)
1-800-495-0887