April 14, 2020

SBA Provides Much-Sought Guidance On PPP Loans For Self-Employed, Independent Contractors

With independent contractors and the self-employed now applying for Paycheck Protection Program loans, the Small Business Administration today issued an interim final rule clarifying eligibility and application processes for these individuals.

The rule clarifies that self-employed individuals who filed Schedule C with their federal income taxes and were operating on Feb. 15, 2020, are eligible for PPP loans, except for partners in a partnership. (The partnership is the eligible entity, and the rule provides guidance for calculating the self-employment income of general active partners as payroll cost.)

The rule also provides processes for self-employed applicants to calculate their maximum loan amount, depending on whether they have employees or not. Self-employed PPP loan recipients may use the proceeds for “owner compensation replacement,” calculated based on monthly net profits.

The SBA also clarified that many bank directors and shareholders are eligible for PPP loans from their banks. Pre-existing SBA limits on these applicants’ eligibility shall not apply to otherwise eligible businesses owned in whole or part by outside bank directors or those holding a less-than-30% equity interest in the PPP lender, provided that the eligible business follows the same process as any similarly situated customer or account holder and does not receive favoritism. However, officers and key employees of the bank may not obtain a PPP loan from their own bank but may apply at a different lender.

Gambling businesses are eligible for PPP loans, SBA added, provided their legal gaming revenue did not exceed both $1 million and 50% of total business revenue in 2019. SBA also clarified that agency requirements for loans pledged for borrowings at a Federal Reserve Bank or advances from a Federal Home Loan Bank do not apply to PPP loans.

SBA Report: $248B Of PPP Funds Allocated As Of April 13

As of April 13, the Small Business Administration has approved nearly 1.04 million loans totaling $248 billion through its Paycheck Protection Program, according to a report released by SBA. A total of 4,664 lenders were participating in the program at the time the report was issued.

In Missouri, a total of 34,088 loans were approved for $6,433,368,771.

PPP loans have been approved in all U.S. states and territories. Of all the loans made so far, 70% were for smaller amounts under $150,000. Overall, the average loan size was $239,152. About half of the funds allocated so far have gone to four sectors.
  • construction
  • professional, scientific and technical services
  • manufacturing
  • health care and social assistance

Judge: Banks Can Restrict PPP Applicants To Current Customers

A federal judge in Maryland declined to issue an injunction requiring Bank of America to accept PPP loan applications from applicants that do not currently have a credit relationship with the bank. The ruling comes as some banks have limited PPP applications to current customers, often because of Bank Secrecy Act requirements or limited capacity to process a massive number of loan applications.
The judge noted that the CARES Act authorizing the PPP does not expressly provide a private right of action; moreover, she said, Bank of America’s policy in this case did not “run afoul of the CARES Act. … Given the plain statutory language, the Court is not at liberty to impose further limitations on lenders.”

CFPB Issues Interpretive Rule Greenlighting Use Of Prepaid Cards For EIPs

To help facilitate the timely, efficient and secure disbursement of the CARES Act economic impact payments, the Consumer Financial Protection Bureau issued an interpretive rule stating that, if certain conditions are met, certain government pandemic relief payments are not considered “government benefits” for the purposes of the Electronic Funds Transfer Act and Regulation E. The rule takes effect upon publication in the Federal Register.
Under the EFTA and Reg E, government agencies are prohibited from requiring consumers to establish accounts to receive electronic funds transfers at a particular institution as a condition of receipt of a government benefit. By clarifying that the COVID-19 economic impact payments are not considered “government benefits,” the CFPB has effectively cleared the way for the IRS to issue these funds to consumers via prepaid cards.

ABA Calls For Adjustments To KYC Rules To Facilitate PPP Loans

Temporary adjustments to “know your customer” and anti-money laundering requirements are key to speeding up the rate at which banks are able to provide much-needed relief to small businesses through the SBA’s Paycheck Protection Program, the American Bankers Association said in a letter to Sens. Tim Kaine, D-Va., Chris Coons, D-Del., and Angus King, I-Maine. ABA emphasized that the current KYC/AML framework has required many banks to limit the application process to their existing customers.
To speed relief, ABA President and CEO Rob Nichols recommended that for any account opened for a new customer during the national emergency by a business that already has an established bank account with any other financial institution, it should be presumed by law that the customer has been examined for the appropriate due diligence. He also called for an exemption from certain KYC/AML requirements for accounts set up for the purpose of accepting CARES Act funds.
“The clock is ticking to distribute — fairly — an unprecedented amount of funding through agency infrastructure built for much smaller volumes,” Nichols said in a letter. “For this reason, we urge policymakers to identify the appropriate balance between KYC/AML requirements and the urgent need to get funds into the communities.”

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