At the Rules of Thumb blog from MoneyThumb we do our best to keep our readers informed and educated on important financial news and information. Today we would like to clear up any confusion private lenders may have about their ability to make PPP (Paycheck Protection Program) loans to small businesses.
So first let's go over exactly what PPP loans are. As part of the US government stimulus package resulting from the coronavirus pandemic, $350 billion was allocated toward PPP loans to help save small businesses. Millions of businesses were forced to close their doors by government order to help stop the spread of the virus, thus the origination of PPP loans. Below is an explanation of PPP loans from the US treasury department. Although this information is designed for small business owners, it is imperative that a private lender hoping to make PPP loans understands the basics:
SMALL BUSINESS PAYCHECK PROTECTION PROGRAM
The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of
payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and
Funds are provided in the form of loans that will be fully forgiven when used for payroll costs,
interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the
forgiven amount must have been used for payroll). Loan payments will also be deferred for six
months. No collateral or personal guarantees are required. Neither the government nor lenders
will charge small businesses any fees.
Must Keep Employees on the Payroll—or Rehire Quickly
Forgiveness is based on the employer maintaining or quickly rehiring employees and
maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if
salaries and wages decrease.
All Small Businesses Eligible
Small businesses with 500 or fewer employees—including nonprofits, veterans organizations,
tribal concerns, self-employed individuals, sole proprietorships, and independent contractors—
are eligible. Businesses with more than 500 employees are eligible in certain industries.
If you are wondering whether as a private lender you are eligible to offer PPP loans to borrowers, read this information fact sheet for lenders, also from the US treasury department. The main criteria are that you must be certified as a lender by the Small Business Administration. But that is not a problem because here is the application to become an SBA certified lender. If you meet the following requirements, as listed on the application, you will qualify:
Lender Eligibility Requirements
Depository or non-depository financing providers may be eligible to participate as lenders in the
Paycheck Protection Program if they meet the criteria described in the attestations below.
Lenders must attest to all of the statements in either Group A or Group B below.
Group A. Lender attests that it:
Is a depository or non-depository financing provider; AND Lender originates, maintains, and services business loans or other commercial, financial receivables or participation interests; AND Has a formal compliance program relating to, e.g., auditing and compliance with applicable laws; AND Applies the requirements under the BSA as a federally regulated financial institution, or the BSA requirements of an equivalent federally regulated financial institution; AND Has been operating since at least February 15, 2019; AND Has originated, maintained, and serviced more than $50 million in business loans or other commercial financial receivables during a consecutive 12 month period in the past 36 months.
Group B. Lender attests that it is:
A service provider to an insured depository institution; AND Has a contract to support such institution’s lending activities in accordance with 12 U.S.C. § 1867(c).
Once you determine you are qualified to become a PPP lender, you can begin making loans. However, time is really of the essence, since of the $350 billion allocated for PPP loans, $250 billion has already been claimed. But don't be disheartened, there is already plans being made to provide another $250 billion in the next stimulus package for PPP loans.
If you still have questions about making PPP loans as a private lender, leave a comment below and we will help you find the answer. We would really appreciate it if you would share this blog post on your social media page so that everyone you know can become educated about PPP loans, especially your private lending peers.