Current & potential developments

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act or the Act) (P.L. 116-136) was passed to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic. The Small Business Administration (SBA) received funding and authority through the Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID-19 emergency. (The SBA doesn’t lend money directly to small business owners but works with lenders to provide loans to small businesses. It sets guidelines for loans made by its partnering lenders, community development organizations, and micro-lending institutions.)

Section 1102 of the Act temporarily permits SBA to guarantee 100 percent of 7(a) loans under a new program titled the “Paycheck Protection Program.” section 1106 of the Act provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the Paycheck Protection Program.

The intent of the program is to provide loans to businesses to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills.

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp

Impact

There has been a significant influx of small businesses applying for this loan program with lenders. The ETran system used by lenders to process the applications for these loans has been slowed given the high volume of applicants.

The funding for the PPP from the government appears insufficient to meet the demand. This adds pressure on applicant to have their applications approved quickly.

Small Businesses are in desperate need for these loans to avoid ceasing operations.

The PPP requirements as far as qualifications, required documentation and uses of proceeds are not final.

This environment of increased volume, ambiguity of program requirements, urgent need for approvals and loan application processing delays provides incentive to “push the applications through” even though the lender is aware the applicant does not qualify for the program.

Key questions you should consider

  • Do you have sufficient staffing to meet the increased demand for SBA PPP loan applications?
  • Does the assigned staff have a familiarity with processing SBA loan applications in general and navigating SBA’s ETran system? (All lenders must use ETran for loan originations.)
  • Are the assigned staff familiar with the SBA requirements for loan origination and documentation in general?
  • Are the assigned staff familiar with the SBA PPP specific requirements to qualify applicants (primarily any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of: 500 employees, or That meets the SBA industry size standard if more than 500)?
  • Are the assigned staff familiar with the SBA PPP specific requirements to underwrite, originate and fund the loan?
  • Are the assigned staff familiar with the SBA PPP specific requirements to use of loan proceeds, in particular funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll)?

How Accume can help

A comprehensive program risk assessment focusing on the staff qualifications and their training relating SBA requirements and procedures as well focusing on systems and procedures supporting the SBA loan portfolio.

A quality control review of a sample of loan applications to verify compliance with SBA general requirements relating to loan applicant pre-screening, background checks and criteria qualification.

A quality control review of a sample of loan applications to verify compliance with SBA PPP program specific requirements relating to applicant qualification, underwriting and origination, use of funds and loan documentation.