Update: PPP and Other Small Business Support

Every media outlet is headlining news of the $900 billion coronavirus aid package. The following article is a high-level overview of the new stimulus package, especially as it relates to you and your borrowers. Please note the linked document here. Bookmark it, print it, and keep it available for future reference as it shares crucial information regarding the bill and our industry. Below are key components to the bill and answers to your common questions:

Payment Relief is Coming Back

(See Section 25 of the linked document):

• Our best guess is that payment relief cannot be applied retroactively. This is subject to additional forthcoming guidance, likely through a procedural notice.
• There was $9B left over from Section 1112. The new legislation reduced the appropriations budget for payment relief to $3.5B. This reduction is driving the $9,000 monthly cap.
• Clients who benefited from Section 1112 earlier this year will receive 3 months of additional relief, again capped at $9,000 per month. This will start February 1, 2021.
  • Certain NAICS are eligible for up to an additional 5 months of payments.
• In terms of client messaging to this group, please be sure to add a disclaimer regarding the appropriations for the extension of payment relief. This funding is likely to be exhausted and the $9,000 per month cap could be lowered over time. All borrowers are subject to the proportional response of engagement with these relief benefits (e.g. this means 5 additional payments could actually be 4 or fewer payments).
• Borrowers who met the previous September 27, 2020 disbursement deadline will continue to receive full P&I payments, and 6 months of payments.
• Loans approved on or after February 1, 2021 will receive 6 months of payments too, but theirs will be capped at $9,000 per month.
• If we were working on a loan modification with your team on behalf of a borrower, we will be in touch after the holidays with a specific plan so clients are lined up for payment relief come February 1, 2021.

Regarding the SBA 7a Program 

(See Sections 26 &27)

• 90% guarantees and fee waivers are back, at least temporarily (See Sections 26 & 27).

Questions and answers to common questions:

The carveout for an EIDL advance, which creates the unwanted PPP “stub loan” is going away, right?
Yes. The new legislation repeals section 1110(e)(6) of the CARES Act, which requires PPP borrowers to deduct the amount of their EIDL advance from their PPP forgiveness amount. We’ll have to wait for a Procedural Notice for clarity on the mechanics.

If a borrower has a PPP1 loan and it is not yet forgiven can they apply for and receive a PPP2 loan?
Yes, assuming they meet the eligibility criteria.

A prior SBA Procedural Notice indicated that lenders were required to send 1099s, is that changing?
Yes, 1099s are no longer required. All Section 1112 payments are considered non-taxable income, which shall apply both retroactively to any payment made to any borrower starting with the enactment of Section 1112 of the CARES Act and prospectively.

When is the legislation likely to go into law?
It is expected the president will sign it on Monday, December 28. From there, the SBA has ten days to issue regulations to carry out the act. Based on this timeline, we do not expect specifics related to the programs to be officially announced until after the New Year.

Prudent Lenders is a lender service provider (LSP), which means we’re here to help financial institutions like yours implement and manage the SBA loan programs. As we’ve said before, we’ll get through this together. We look forward to working together to help businesses keep moving forward.