On March 27, 2020, the US government passed the CARES Act in response to the COVID-19 crisis. Under the CARES Act, the Small Business Administration (SBA) is offering loans under the Paycheck Protection Program (PPP). On April 2, 2020, the SBA issued an interim final rule (Initial Rule) outlining the key provisions for implementing the PPP. The SBA has issued subsequent interim final rules with additional guidance for implementing the PPP.

On April 30, 2020, the SBA issued an interim final rule (IFR) limiting PPP loans to $20 million for a single corporate group and clarifying PPP eligibility criteria for non-bank and non-insured depository institution lenders. Non-bank and non-insured depository institution lenders can be eligible PPP lenders if they meet certain thresholds in the amount of loans originated, maintained, and serviced during a 12-month period in the past 36 months. Thresholds are lower for community development financial institutions and majority minority-, women-, or veteran/military-owned lenders. This IFR is effective immediately. Public comment on the proposed rule must be received on or before June 3, 2020.

To preserve the limited PPP resources, businesses that are part of a single corporate group (majority owned, directly or indirectly, by a common parent) are limited to up to $20 million of PPP loans. This limitation applies to any PPP loan that is not fully disbursed as of April 30, 2020, and to partially disbursed loans where any additional disbursement would exceed the $20 million limit for the single corporate group. The loan applicant must notify the PPP lender if he has applied for or received PPP loans in excess of $20 million, and cancel any pending PPP loan application or approved PPP loan above the limit. Failure to do so will be a use of PPP funds for unauthorized purposes, and the loan will not be forgiven. A lender may rely on an applicant’s representation concerning his compliance with this limitation.

The IFR clarified that the SBA’s affiliation rules continue to apply regardless of this limitation. Businesses are subject to this limitation even if the businesses are eligible for the waiver-of-affiliation provision under the CARES Act or are otherwise not considered to be affiliates under SBA’s affiliation rules (see Legal Update, CARES Act: SBA Clarifies Application of Affiliate Rules for Paycheck Protection Program and Checklist, CARES Act: Stimulus for Small Businesses Under the SBA Checklist).

The Initial Rule provided that a non-bank and non-insured depository institution lender may be eligible to be a PPP lender if the lender has originated, maintained, and serviced more than $50 million in business loans or other commercial financial receivables during a 12-month period in the past 36 months, in addition to satisfying certain other requirements.

The IFR clarified that a non-bank lender or non-insured depository institution that originated, maintained, or serviced – but did not performed all three of these functions for – more than $50 million in business loans or other commercial financial receivables during a 12-month period in the past 36 months could be approved to be a PPP lender if they performed the required volume ($50 million) of any one of these three functions (originating, maintaining, or servicing).

The IFR also clarified that a non-bank lender that does not meet the $50 million threshold may be eligible to be a PPP lender if it has originated, maintained, or serviced more than $10 million in business loans or other commercial financial receivables during a 12-month period in the past 36 months, if the non-bank lender is either:

An applicant that meets this $10 million threshold but does not meet the $50 million threshold should leave blank the attestation on the CARES Act Section 1102 Lender Agreement – Non-Bank and Non-Insured Depository Institution Lenders (SBA Form3507) related to the $50 million threshold and instead include with its application an attestation stating: “Lender attests that it has originated, maintained, or serviced more than $10 million in business loans or other commercial financial receivables during a consecutive 12-month period in the past 36 months.”

For summaries of the SBA PPP, see:

Checklist, CARES Act: Stimulus for Small Businesses Under the SBA.

Checklist, CARES Act: Small Business Administration Payroll Protection Program: Lender Guidance.

For additional guidance from the Treasury Department, see: