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SBA Guidance on PPP Loans

SBA Guidance on PPP Loans
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The Small Business Association has created guidelines for companies that took part in the Paycheck Protection Program, as part of the CARES Act enacted in response to COVID-19.

Key Points
  • New guidelines indicate $2million borrowing point differences
  • SBA loans are forgiveable based on certain criteria
  • Loans have a maturity of 2 years and an interest rate of 1%


On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted, ushering in a $2 trillion stimulus. The primary goals were to boost unemployment insurance, send economic relief checks to many Americans and provide $376 billion in small business relief.

The CARES Act affected retirement plans and other entities, but its major impact was to be felt through the Paycheck Protection Program (PPP). These loans were intended for corporations with under 500 employees, and enacted loans up to $2 million.

Paycheck Protection Program

The Paycheck Protection Program (PPP) is available again as of the end of April, and is a loan designed to provide and promote direct incentive for small businesses to keep workers on their payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.

Originally tapped out, the fund was recently reupped and is available for application through many banks. Any existing SBA 7(a) lender, any federally insured depository institution, federally insured credit union, and Farm Credit System institution may be used to submit applications.

United States Treasury Secretary Steven Mnuchin announced the SBA would automatically audit all loans above $2 million.

SBA Guidance on PPP Loans

Through new guidance issued as of May 13, 2020, US Treasury Secretary Mnuchin also the Small Business Administration (SBA) will consider all loans under the $2 million cutoff to be considered necessary, and therefore will not require repayment. This provides immunity to many small businesses who received funds through the PPP loan programs.

When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” per the application itself. All loans will be considered necessary if they are under the $2 million threshold. The safe harbor provides certainty to borrowers with a loan of less than $2,000,000 that the loan was necessary, and additionally provides comfort to borrowers with loans in excess of $2,000,000 that they will not face criminal or civil penalties if the loan is determined by the SBA to not be necessary. And borrowers of over $2 million will be able to repay their loans without penalty if the SBA deems their receipt unnecessary.

SBA Clarification

The May 13, 2020 SBA clarification and guidance clears up some of the potential pitfalls that seemed apparent to many small business owners, causing them to delay or defer applying for the SBA PPP loan programs. This makes the program more meaningful and likely more effective, as small businesses that did not have immediate access to capital will now apply for the loans the government originally intended.

Additional questions or concerns can be directed to your bank or credit union, who should be able to now advise additional guidance regarding these programs.

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