COVID-19 UPDATES
Nearly $10 Billion Goes to Indiana Small Businesses in PPP Loans
The Small Business Administration and the Department of the Treasury have released numbers for Paycheck Protection Program loan activity during Round Two, which began April 27. Through May 1 of Round Two funding, Indiana banks assisted in completing 31,757 PPP loans totaling $2,060,003,401 in approved dollars. Combining these figures with Round One activity, Indiana banks helped complete 67,747 PPP loans totaling $9,551,448,752 for small businesses.
Nationwide to date during Round Two, 5,432 lenders worked with small businesses to complete applications for 2,211,791 loans approved, totaling $175,743,247,908 in gross dollars, with an average loan size of $79,000. Nationwide during Round One, nearly 5,000 lenders nationwide helped complete applications for 1,661,367 loans approved, totaling $342,277,999,103 in gross dollars.
Gov. Holcomb Outlines Indiana Reopening Plan
On Friday Gov. Holcomb held a press conference to announce the measures his administration plans to take to gradually reopen the state. He predicated the reopening on the basis of four criteria being met:
1. The number of hospitalized COVID-19 patients has decreased for 14 days;
2. The state must retain a surge capacity for critical care beds and ventilators;
3. The state has the ability to test all individuals who exhibit COVID-19 symptoms;
4. Contact tracing measures are in place for all who test positive.
Gov. Holcomb noted that if the state is unable to meet these four critical criteria, the state will pause the reopening process. The administration has provided a five-stage reopening of Indiana that gradually eases requirements and recommendations related to social distancing, public gatherings, business openings and governmental services.
• Stage 1: Indiana is currently in Stage 1, the most restrictive stage.
• Stage 2: Begins on May 4 and runs through May 24.
• Stage 3: Begins on May 24 and run through June 14.
• Stage 4: Begins on June 14 and runs through July 4.
• Stage 5: Begins July 4. We will continue to social distance in this stage, but all other aspects will return to normal.
Gov. Holcomb also provided industry-specific guidelines. Banks should be aware of not only general business guidelines, but also both retail and office guidelines provided.
Indiana Back on Track reopening plan
General reopening guidelines for all businesses
SBA Offers Clarity for PPP Borrowers Attempting to Rehire Employees
The Small Business Administration and the Treasury Department confirmed that Paycheck Protection Program borrowers who attempt to rehire employees that were laid off will not have their loan forgiveness amounts reduced if those employees decline the offer to return to work.
In updates to the PPP FAQs, SBA and Treasury said they would issue an interim final rule in the coming days codifying that a borrower must have documented that they made a good faith, written offer of rehire to the employee for the same wages and number of hours. Borrowers must also document the employee’s rejection of the offer.
In addition, the updated FAQs provide clarification about the treatment of nonprofit hospitals under the CARES Act. A nonprofit hospital may qualify for PPP funding if it “reasonably determines” and maintains documentation that it meets the criteria of a 501(c)(3) under the Internal Revenue Code and is therefore tax exempt under section 501(a), SBA and Treasury noted. They added that these entities should also review all other applicable eligibility criteria.
The FAQs also provide additional guidance for seasonal employers making borrower certifications to obtain PPP funding.
New IRS, Treasury Guidance Reduces Benefits of PPP Loan Forgiveness
New guidance issued by the IRS last week confirmed that any loan amounts forgiven under the CARES Act will be excluded from taxable gross income. However, the guidance also stated that no deduction will be allowed for an expense if the payment of the expense results in forgiveness of a covered loan under the CARES Act.
Treasury Releases Operational FAQs for Economic Impact Payments
The Treasury has released a new Operational FAQ document for financial institutions containing guidance on Economic Impact Payments. The document includes guidance on electronic payment volume and timing, ACH payment processing and post-payment, checks, delinquent debt, and links for more information.
ICYMI - Fed Expands Scope of 'Main Street' Program
The Federal Reserve yesterday expanded the scope of its Main Street Lending Program to accommodate more businesses and more loan options for participating banks. The revised term sheets for the program provide for several changes including: permitting the use of the London Interbank Offered Rate; lowering the minimum loan size somewhat; and providing flexibility on the maximum loan size.
Eligible MSLP loans will be originated after April 24 and have a four-year term with a minimum loan size of $500,000 in the Main Street New Loan Facility and Main Street Priority Loan Facility. The minimum size will be $10 million in the Main Street Expanded Loan Facility. In the MSNLF and the MSELF, lenders will retain 5% of the risk on each loan, while retaining 15% in the newly created MSPLF.
The Fed will provide a more flexible calculation method for maximum loan sizes. In the MSNLF, the maximum loan size will be $25 million or four times adjusted 2019 EBITDA, whichever is less; in the MSPLF, it will be the lesser of $25 million or six times adjusted EBITDA. In the MSELF for larger loans, the maximum loan will be $200 million, 35% of outstanding and undrawn available debt or six times adjusted EBITDA, whichever is less. Instead of referencing loans to the Secured Overnight Financing Rate, lenders in all facilities will use Libor plus 300 basis points.
ICYMI - SBA Limits PPP Funds for Corporate Groups to $20 Million
In an interim final rule yesterday, the Small Business Administration indicated it will limit the amount of Paycheck Protection Program loan funds that a corporate group can receive to $20 million. Businesses are considered part of a corporate group if "they are majority owned, directly or indirectly, by a common parent," according to the rule.
The cap was effective yesterday for outstanding loan applications and also applies to loans that have not yet fully been disbursed. Borrowers that are part of a corporate group that has received funds in excess of this amount are required to notify their lenders and withdraw or cancel pending applications. Borrowers who fail to take these actions will not be eligible for loan forgiveness.
"A lender may rely on an applicant’s representation concerning the applicant’s compliance with this limitation," SBA wrote in the rule. "This rule has no effect on lender obligations required to obtain an SBA guarantee for PPP loans."
ICYMI - Fed Expands PPP Liquidity Facility’s Eligible Participants, Collateral
The Federal Reserve late yesterday expanded access to its PPP Liquidity Facility to nonbank lenders and expanded the range of collateral that can be pledged to the PPPLF. Eligible borrowers will now be able to pledge whole PPP loans that they have purchased.
All lenders approved by SBA to make PPP loans are now eligible to pledge collateral to the PPPLF. Eligible non-depository institutions include nonbank community development financial institutions, Farm Credit System lenders, small business lending companies licensed by SBA and some fintech firms, according to the Fed.
ICYMI - Treasury on PPP: No to Private Companies, Yes to Audits
The Treasury Department said businesses owned by private companies with adequate sources of liquidity are unlikely to qualify for the Paycheck Protection Program. In the latest update to its frequently asked questions on the program, Treasury cited a previous entry that said public companies with substantial market value and access to capital markets are unlikely to qualify.
The FAQs indicate these larger companies likely could not certify in good faith that a PPP loan request is necessary to support their ongoing operations. The updates come after the Los Angeles Lakers and restaurant chains such as Ruth's Chris Steakhouse and Shake Shack returned PPP funds following a public backlash.
Additionally, Treasury Secretary Steven Mnuchin said the department will audit all PPP loans over $2 million before the forgiveness phase to ensure they were made in good faith. Mnuchin said Treasury will also conduct random audits of loans under $2 million.
Under an SBA interim final rule, PPP borrowers may repay the money by May 7 without penalty if their original certification was not valid.
ICYMI - Treasury Issues Guidance on Disbursements, Collecting Fees
The Treasury Department issued a new interim final rule that answers questions on Paycheck Protection Program disbursements, including collecting processing fees on disbursed loans.
The interim rule indicates borrowers are not permitted to make multiple draws from a PPP loan and thereby delay the start of the eight-week covered period. Rather, lenders must make a one-time, full disbursement of the PPP loan within 10 calendar days of when the loan is assigned a loan number by SBA. For loans that received an SBA loan number prior to the posting of this interim final rule but have not yet been fully disbursed, the 10-day period begins as of April 28 and the eight-week covered period began on the date of first disbursement.
The rule also indicates lenders are not responsible for delays in disbursement attributable to a borrower’s failure to provide required loan documentation in a timely fashion, including a signed promissory note. Loans for which funds have not been disbursed because a borrower has not submitted required loan documentation within 20 calendar days of loan approval shall be canceled by the lender.
If the 10th calendar day is a Saturday, Sunday or legal holiday, the period continues to run until the end of the next business day, according to the rule. When disbursing loans, lenders must send any amount of loan proceeds designated for the refinance of an Economic Injury Disaster Loan directly to SBA and not to the borrower.
Further, the interim final rule includes information on collecting fees for PPP loans:
• SBA will make available a specific SBA Form 1502 reporting process through which PPP lenders will report on PPP loans and collect the processing fee on fully disbursed loans to which they are entitled.
• Lenders must electronically upload SBA Form 1502 information within 20 calendar days after a PPP loan is approved or, for loans approved before availability of the updated SBA Form 1502 reporting process, by May 18.
• Lenders will not receive a processing fee: (1) prior to full disbursement; (2) if the PPP loan is canceled before disbursement; or (3) if the PPP loan is cancelled or voluntarily terminated and repaid after disbursement.
• Lenders will be required to provide ACH credit information to direct payment of the requested processing fee and to confirm that all PPP loans for which the lender is requesting a processing fee have been fully disbursed on the disbursement dates and in the loan amounts reported.
ICYMI - Treasury Releases PPP Framework for Seasonal Businesses
The Treasury Department released an interim final rule confirming that seasonal employers are eligible for Paycheck Protection Program loans under an alternative base period. The interim rule allows seasonal employers to use their monthly average payroll payments for any consecutive 12-week period between May 1, 2019, and Sept. 15, 2019, to determine their maximum loan amount.
Treasury said the base period laid out in the CARES Act would leave many summer seasonal businesses unable to obtain funding on terms commensurate with those available to winter and spring seasonal businesses.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.