Fed extends, for 2nd time, provision allowing PPP loans to bank directors, shareholders

A rule to bolster the effectiveness of the “Paycheck Protection Program” (PPP) loan program is extended – for a second time – to give bank directors and shareholders authority to apply for the loans, the Federal Reserve said Tuesday.

The extension applies effective immediately and applies to PPP loans made through March 31, the Fed said.

In a release, the agency said the move was made to “bolster the effectiveness” of the PPP, a program of the Small Business Administration (SBA) that was created by last year’s Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and designed to help small businesses weather the coronavirus pandemic by continuing to pay their employees.

The Fed said the extension, which temporarily modifies its rules so that certain bank directors and shareholders can apply to their banks for PPP loans for their small businesses, includes provisions that are aimed at preventing favoritism. According to the Fed, the extension limits the types and quantity of loans that bank directors, shareholders, officers, and businesses owned by them may receive from their affiliated banks. The limits, the Fed asserted, have prevented some small business owners from accessing PPP loans – especially in rural areas.

“The Board is providing the rule extension to allow banks to continue to make PPP loans to a broad range of small businesses within their communities,” the Fed said. “The SBA explicitly has prohibited banks from prioritizing or providing favorable processing time to PPP loan applications from a director or equity holder, and the Board will administer the rule extension accordingly.”

Comments will be accepted for 45 days on the extension after publication in the Federal Register.

Federal Reserve Board announces the second extension of a rule to bolster the effectiveness of the Small Business Administration’s Paycheck Protection Program (PPP)