How to strike the right note and help business owners now

Credit unions are eager to provide the SBA’s new Paycheck Protection Program loans to qualified business owners. As part of the Coronavirus Aid, Relief and Economic Securities (CARES) Act, the program is meant to provide relief to small businesses in the wake of the pandemic.

Unfortunately, many credit unions are having to spend valuable time seeking guidance to interpret the final interim rule published April 9, 2020 by the Small Business Administration (SBA) – before they can implement the program.

Answers to several questions can get credit unions started on understanding the fundamentals of the PPP program and get back to what they do best – helping their members.

What is the Payment Protection Program (PPP)?

The PPP is part of the Coronavirus Aid, Relief and Economic Securities (CARES) Act. It is intended to provide small businesses with eight weeks of cash-flow assistance through 100 percent federally guaranteed loans.

Who is eligible to lend under the PPP loan program?  

All existing SBA-certified lenders have been given automatic delegated authority to process PPP loans. All federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions that are not currently SBA-certified lenders are also eligible to apply to participate in this program.

Additional information regarding lending eligibility and requirements can be found here.

Is the SBA providing credit unions with necessary loan documentation including commercial and business promissory notes?

The SBA website is providing access to a model loan application.  However, for a promissory note, the SBA is only directing lenders to its template 7(a) loan note located on its website. However, the note does not include revisions to accommodate the unique aspects of the PPP. Lenders should seek their own legal guidance to make sure the documents meet PPP guidelines and the lender’s needs.

Can credit unions use their own commercial loan agreements and promissory notes? If yes, how can credit unions get started?

Yes; under current SBA guidance, credit unions can use their own documents. This is the perfect time to seek guidance from your loan forms provider. They can work with you and your legal counsel to develop a promissory note that meets current PPP guidelines and reflects program parameters

How are loan form providers preparing to help credit unions implement the PPP?

Loan form providers are in a great position to customize PPP commercial and business promissory notes to incorporate the changes you and your counsel feel are needed. They can start with their standard commercial and business closed-end notes or the SBA 7(a) note, or a combination thereof. Then, incorporate loan attributes of the PPP as promulgated by the SBA.

Is it possible for loan form providers to guarantee compliance of a PPP promissory note?

Yes; loan form providers can guarantee compliance of the content of the PPP related note with the appropriate loan attributes as they exist according to the SBA interim final rule. However, loan form providers should not be expected to simultaneously guarantee documents fulfill all non-PPP related SBA requirements credit unions are required to follow as a SBA or non-SBA lender.

These are challenging times for credit unions and their members. And there are many factors to weigh and consider when jumping in to help members take advantage of PPP loans. Credit unions should seek help from their lending document vendor and review all new and existing documents with their own legal counsel.

Contact us for a consultative session to determine what documentation you will need to close these PPP loans.

Jackie Philpot

Jackie Philpot

Jackie has been in the financial services industry for over 35 years with a primary focus on the credit union market. Jackie oversees the operational and strategic direction of Securian’... Web: securian.com/financial-institutions Details

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