Fed extends PPP loan rule third time to permit loans to bank directors, shareholders

A rule to bolster the effectiveness of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) has been extended for the third time by the nation’s central bank to permit certain bank directors and shareholders to seek loans for their small businesses.

In a release Friday, the Federal Reserve Board said the rule extension, issued by interim final rule with a request for comments, is effective immediately and applies to PPP loans made from March 31 through June 30, 2021. The rule change will continue to apply if the PPP – created to help mitigate the financial and economic impacts of the COVID-19 pandemic – is extended, with the change ultimately sunsetting on March 31, 2022. The Fed said comments will be accepted for 45 days after publication in the Federal Register.

To prevent favoritism, the Fed limits the types and quantity of loans that bank directors, shareholders, officers, and businesses owned by these persons can receive from their affiliated banks, but the Fed noted these limits have prevented some small business owners from accessing PPP loans, especially in rural areas.

“The SBA clarified last year that PPP lenders can make PPP loans to businesses owned by their directors and certain shareholders, subject to certain limits, and without favoritism,” the Fed said in Friday’s release. “The Board’s rule extension will allow those individuals to apply for PPP loans, consistent with SBA’s rules and restrictions. The extension only applies to PPP loans.”

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

Be the first to comment

Leave a Reply

Your email address will not be published.