New Information Related to SBA Authorization and "Insider" Loans

Late on Friday, April 10, the Treasury updated its FAQs to provide greater clarity around whether lenders need to wait for a separate authorization form to close PPP loans. Despite this being an abnormal practice for traditional SBA loans, the answer remains to close the loan without waiting for a separate SBA Authorization so long as you executed the PPP Lender Application Form. Based on the FAQ, repeated below, it is unclear if or when SBA will issue a separate authorization for PPP loans. Those who may have received an authorization earlier in the process from the system received an incorrect authorization. Below is Treasury’s FAQ (which is also reprinted in WBA’s FAQs): 

21. Question: Do lenders need a separate SBA Authorization document to issue PPP loans? 

Answer: No. A lender does not need a separate SBA Authorization for SBA to guarantee a PPP loan. However, lenders must have executed SBA Form 2484 (the Lender Application Form for the Paycheck Protection Program) to issue PPP loans and receive a loan number for each originated PPP loan. Lenders may include in their promissory notes for PPP loans any terms and conditions, including relating to amortization and disclosure, that are not inconsistent with Sections 1102 and 1106 of the CARES Act, the PPP Interim Final Rule and guidance, and SBA Form 2484. 

In addition, WBA has received many questions related to whether a bank may make a PPP loan to one of its directors since the program started. This has been a point of confusion from the start because there is such a prohibition in the traditional SBA SOP for 7a loans. In the Lender’s PPP application, the only certification the lender makes on that document is that the “Authorized Lender Official, nor such individual’s spouse or children, has a financial interest in the Applicant.” Certainly, you must adhere to this certification. In addition, the answer below has been provided to individual bankers who inquired through the 7a email “helpline” that is consistent with the broader language in the SBA SOP for regular 7a loans. WBA believes you should be following this guidance despite it not being published on Treasury or SBA’s websites. 

“Thank you for contacting the 7a Loan Guaranty Processing Center with your inquiry. 

Any Associates of Lender would need to apply at another financial institution. Per the federal regulations at 13 cfr 120.10: 

(1) An Associate of a Lender or CDC is: 
(i) An officer, director, key employee, or holder of 20 percent or more of the value of the Lender's or CDC's stock or debt instruments, or an agent involved in the loan process; 
(ii) Any entity in which one or more individuals referred to in paragraphs (1)(i) of this definition or a Close Relative of any such individual owns or controls at least 20 percent. 

Close Relative is a spouse; a parent; or a child or sibling, or the spouse of any such person. 

Per 13 cfr 120.140 (in part): 

Lenders, Intermediaries, and CDCs (in this section, collectively referred to as “Participants”), must act ethically and exhibit good character. Ethical indiscretion of an Associate of a Participant or a member of a CDC will be attributed to the Participant. A Participant must promptly notify SBA if it obtains information concerning the unethical behavior of an Associate. The following are examples of such unethical behavior. A Participant may not: 

(a) Self-deal;
(b) Have a real or apparent conflict of interest with a small business with which it is dealing (including any of its Associates or an Associate's Close Relatives) or SBA;
(c) Own an equity interest in a business that has received or is applying to receive SBA financing (during the term of the loan or within 6 months prior to the loan application);

(j) Fail to disclose to SBA whether the loan will: 
              (1) Reduce the exposure of a Participant or an Associate of a Participant in a position to sustain a loss;

(l) Engage in any activity which taints its objective judgment in evaluating the loan. 

If we can be of further assistance, please do not hesitate to contact us.” 

WBA will continue to keep members updated as the guidance for PPP loans continues to evolve.

By, Amber Seitz