April 9, 2020
The U.S. Department of Treasury has released its application to enable nondepository companies and service providers to banks to become a lender under the Paycheck Protection Program ("PPP"). Under the Interim Final Rule put forth by the Treasury, any depository or non-depository financing provider that originates, maintains, and services business loans or other commercial financial receivables and participation interests, has a formalized compliance program, and applies the requirements under the Bank Secrecy Act as a federally regulated financial institution (or the Bank Secrecy Act requirements of an equivalent federally regulated financial institution) can become a PPP lender so long as the applicant has been operating since at least February 15, 2019, and has originated, maintained, and serviced more than $50 million in business loans or other commercial financial receivables during a consecutive 12-month period in the past 36 months.
Additionally, the Interim Final Rule allows any service provider to an insured depository institution that has a contract to support that institution's lending activities in accordance with 12 U.S.C. ยง 1867(c) of the Bank Service Company Act, which governs permissible bank service company activities, to become a lender, so long as the service provider and bank are in good standing with the appropriate federal banking agency. Lenders are entitled to fees from the SBA for each loan of five percent for loans of not more than $350,000; three percent for loans of more than $350,000 and less than $2,000,000; and one percent for loans of at least $2,000,000.
The Treasury's PPP resources can be found here.
Importantly, the Federal Reserve Board announced this morning that it is creating a market for the loans originated under the PPP. The Federal Reserve Board's efforts will "(b)olster the effectiveness of the Small Business Administration's Paycheck Protection Program by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses. The PPP provides loans to small businesses so that they can keep their workers on the payroll. The Paycheck Protection Program Liquidity Facility (PPPLF) will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value." The PPP Lending Facility Term Sheet provides that the Federal Reserve Board is working to expand eligibility to other lenders that originate PPP loans in the near future.