NCUA letter detailing SBA Paycheck Protection Program (PPP) notes 100% loan guarantee, no impact on biz loan cap

Loans credit unions make through the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), created to help small businesses weather the coronavirus pandemic, are 100% guaranteed and will not count against a credit union’s member business loan cap, the National Credit Union Administration (NCUA) noted in a letter sent Tuesday to supervised institutions.

Created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the program – available on a first-come, first-served basis – has been allocated $349 billion and will accept applications through June 30 or until funds are exhausted.

Small businesses were able to apply to the PPP as of last Friday April 3. Independent contractors and self-employed individuals may begin to apply this Friday.

NCUA’s letter to credit unions notes that this program is administered by the SBA’s 7(a) loan program but operates differently. For example, it notes:

  • Unlike a 7(a) loan, PPP loans are 100% guaranteed, meaning there is no credit risk to a credit union if it complies with the applicable lender obligations set forth in the interim final rule. Again, PPP loans are not included in the federal statutory member business loan cap imposed on credit unions.
  • The full principal amount of a PPP loan may qualify for loan forgiveness.
  • PPP loans may be in amounts up to $10 million – twice the amount of a 7(a) loan.
  • Lenders must comply with the applicable lender obligations set forth in the interim final rule but will be held harmless for any borrower’s failure to comply with program criteria.

“The NCUA will not criticize credit unions’ good faith efforts to prudently use the SBA programs with members affected by COVID-19,” the agency said, referring to the disease caused by the coronavirus.

The NCUA notes that all current SBA 7(a) lenders are automatically approved to make PPP loans. A federally insured credit union that is not an approved 7(a) lender can receive SBA approval by submitting a CARES Act Section 1102 Lender Agreement. The SBA will automatically approve lenders that are not designated in troubled condition or subject to a formal enforcement action to address unsafe or unsound lending practices.

“As non-depository financing providers, credit union service organizations may qualify as a PPP lender subject to the requirements listed in the interim final rule,” the NCUA added. It noted, however, that “[f]inancial businesses primarily engaged in the business of lending…” cannot borrow under the PPP due to SBA regulations.

In addition to the PPP, the CARES Act dated the SBA Economic Injury Disaster Loan (EIDL) program for small businesses affected by COVID-19. Loans can be up to $10,000 and do not have to be repaid, the NCUA letter notes.

NCUA Letter 20-CU-06