We previously blogged about the Interim Final Rule (Rule) that was issued regarding the Paycheck Protection Program (PPP) created by the Coronavirus Aid, Relief and Economic Security (CARES) Act. Under the PPP, small businesses are eligible to take loans to cover payroll, mortgage interest, rent and utilities during the eight-week period after the loan originates. These loans will be completely forgiven if borrowers comply with certain conditions.

Much attention has been given to what borrowers need to do to acquire PPP loans. This post will explain how financial institutions can become PPP lenders.

Financial Institution Eligibility

All Small Business Administration (SBA) 7(a) lenders are already automatically approved to make PPP loans, but they are not the only eligible institutions.
According to the Rule, the following types of lenders will be automatically qualified to make PPP loans upon transmission of a CARES Act Section 1102 Lender Agreement (SBA Form 3506), unless they currently are designated in Troubled Condition by their primary federal regulator or are subject to a formal enforcement action with their primary federal regulator that addresses unsafe or unsound lending practices:

  1. Any federally insured depository institution or any federally insured credit union; or
  2. Any Farm Credit System institution (other than the Federal Agricultural Mortgage Corporation) as defined in 12 U.S.C. 2002(a) that applies the requirements under the Bank Secrecy Act and its implementing regulations (collectively, BSA) as a federally regulated financial institution, or functionally equivalent requirements that are not altered by this rule.

Additionally, any depository or non-depository financing provider may seek approval to make PPP loans if it:

    • Originates, maintains, and services business loans or other commercial financial receivables and participation interests;
    • Has a formalized compliance program;
    • 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, or is a service provider to any insured depository institution that has a contract to support such institution’s lending activities in accordance with 12 U.S.C. § 1867(c) and is in good standing with the appropriate Federal banking agency; and
    • Is not currently are designated in Troubled Condition by its primary federal regulator and is not subject to a formal enforcement action with its primary federal regulator that addresses unsafe or unsound lending practices.

How to Apply

Our office recently reached out to the SBA to inquire about the process for lenders to seek approval to become PPP lenders. This afternoon, we received the following guidance:

  1. Existing Lenders with an active SBA Form 750 are automatically enrolled as participants in the PPP program. Lenders with new or inactive SBA Forms 750 must apply for PPP using the SBA Form 3506.
  2. Financial institutions who would like to become PPP lenders should visit the “Lender Forms and Guidance” section of the PPP portion of the SBA website. Here, federally regulated institutions who have no history with SBA loan programs can obtain the application form: SBA Form 3506.
  3. The “Paycheck Protection Program, Lender Application Form – Paycheck Protection Program Loan Guaranty,” SBA Form 2484, is for use with individual loan applications and IS NOT part of the application to become a participating lender in the PPP.
  4. Applicants must ensure that SBA Form 3506 is completed in its entirety, witnesses have signed (bank seal on the document is not necessary but is helpful), and an “Incumbency Certificate” must be attached.
  5. Completed applications can be submitted by e-mail to delegatedauthority@sba.gov. When submitting an application, the applicant must not use a secure e-mail, as SBA will not be able to open it.

Additionally, SBA explained that any applications for lender participation that were submitted before 3:30 pm EST on Friday April 3, 2020, likely did not have the correct documentation as it was still being finalized. These applicants must resubmit their requests using the correct documentation with SBA Form 3506 as approved by OMB (SBA Form 3506 must reflect “OMB Control Number: 3245-0407” in the upper right-hand corner. Draft versions are typically missing the “0407” and will not be accepted for processing).

If you have any questions, feel free to contact me at (516) 393-8292 or jbaquet@jaspanllp.com