ALEXANDRIA, Va.–The loans credit unions are making through the Small Business Administration’s (SBA) new Paycheck Protection Program (PPP) are 100% guaranteed and will not count against a CU’s member business loan cap, according to a new letter from NCUA.
Separately, NCUA joined with other agencies in revising a statement urging regulators to work with borrowers affected by the coronavirus pandemic.
As CUToday.info has reported, the $349-billion PPP is being administered through the SBA and is available to companies of fewer than 500 employees to primarily cover payroll costs during the coronavirus pandemic. If a company meets certain conditions, the loans are to eventually be forgiven.
While credit unions and other SBA-certified lenders continue to wrestle with some of the kinks in the new SBA system, it is now making billions of dollars per day in new loans.
Beware the Differences
In its Letter to Credit Unions, NCUA said the program may be administered by SBA’s 7 (a) loan program, but there are differences credit unions need to be aware of, including:
- PPP loans are 100% guaranteed, meaning there is no credit risk to a CU if it complies with the applicable lender obligations set forth in the interim final rule.
- PPP loans are not included in the federal statutory MBL cap. (Credit unions have advocated with Congress for that provision.)
- The full principal amount of a PPP loan may qualify for loan forgiveness.
- PPP loans may be in amounts up to $10 million – twice the amount of a 7(a) loan.
- Lenders must comply with the applicable lender obligations set forth in the interim final rule but will be held harmless for any borrower’s failure to comply with program criteria.
“The NCUA will not criticize credit unions’ good faith efforts to prudently use the SBA programs with members affected by COVID-19,” the agency said in its letter.
How to Apply to Participate
NCUA went on to remind all CUs that are currently approved SBA 7(a) lenders are automatically approved to make PPP loans.
Federally insured credit unions that are not an approved 7(a) lender can receive SBA approval by submitting a CARES Act Section 1102 Lender Agreement. The SBA will automatically approve lenders that are not designated in troubled condition or subject to a formal enforcement action to address unsafe or unsound lending practices, the agency added.
NCUA’s letter goes on to state, “As non-depository financing providers, credit union service organizations may qualify as a PPP lender subject to the requirements listed in the interim final rule."
NCUA reminded that the way the new PPP rules are currently written, credit unions, as lenders, are not permitted to apply for funds to cover their own payroll costs.
Agencies Issue Revised Encouragement
Separately, NCUA joined with other financial institution regulatory agencies and state financial regulators in issuing a revised interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19. The new statement also provides additional information regarding loan modifications as well as the agencies’ views on consumer protection considerations.
“The revised statement clarifies the interaction between the interagency statement issued on March 22, 2020, and the temporary relief provided by Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act, which was signed into law on March 27, 2020,” the agencies said. “Section 4013 allows financial institutions to suspend the requirements to classify certain loan modifications as troubled debt restructurings (TDRs). The revised statement also provides supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital.”
The agencies said they continue to encourage financial institutions to work with borrowers and “will not criticize institutions for doing so in a safe-and-sound manner. The agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk.”
Examiners’ Judgement
According to the statement, the agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs.
“Regardless of whether modifications are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify terms on existing loans for affected consumers,” the agencies said.