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PPP Applications Begin Today, But the Questions Have Already Started (CUToday, April 3, 2020)

Friday, April 3, 2020  
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WASHINGTON–With the new Paycheck Protection Program set to go begin receiving applications today, CUNA, NAFCU and the Defense Credit Union Council are saying numerous questions remain unanswered, including whether non-profit organizations such as CUs are eligible to also apply to receive funds.

It isn’t just CUs uncertain over how the program is to work; banks across the country have also expressed concerns over the $349-billion program aimed at providing assistance to companies of 500 employees or fewer so they can maintain their workforces without laying anyone off as a result of the widespread economic shutdown from the coronavirus pandemic.

Numerous people have referred to the task before the Treasury Department and the Small Business Administration of designing the Paycheck Protection Program, also known as the “PPP,” as  “building the plane as they fly it.”

The PPP was authorized less than two weeks ago as part of the $2-trillion CARES Act and are part of the SBA’s 7 (a) loan program. The loans are to be forgiven as long as the money is used to keep employees on the payroll and to pay for other expenses like rent, utilities and mortgage interest. 

CUNA Statement

CUNA President Jim Nussle released a statement after the SBA published an Interim Final Rule Thursday announcing the implementation of Sections 1102 and 1106 of the CARES Act saying credit unions are looking for more guidance.

Nussle Jim

Jim Nussle

“Credit unions are eager to serve their members and communities, and they want to help small businesses succeed through the SBA’s Paycheck Protection Program,” Nussle said. “The CARES Act was enacted less than a week ago and there have been a number of questions regarding the expectations for lenders under this program to be able to help numerous businesses weather financial challenges due to the growing and ongoing public health crisis. We appreciate the guidance that has been published this evening, and we are reviewing it closely.

“Nevertheless, the guidance was released hours before this program is set to begin and there are still a number of unanswered questions which will very likely complicate quick fulfillment of these critical loans,” Nussle continued. “Credit unions will now begin the complex task of successfully implementing a $350 billion rescue program from the ground up, and we’ll be working tirelessly to do so.”
NAFCU Seeks Clarification

Separately, NAFCU is also calling on the SBA to clarify eligibility for loans under PPP, including the eligibility of CUs to apply for funds to cover their own payroll costs. NAFCU noted that like other small businesses, federally-insured credit unions "are facing difficult staffing and payroll decisions" in the wake of the coronavirus.

In a letter to SBA Administrator Jovita Carranza, NAFCU President and CEO Dan Berger said the majority of FICUs themselves “qualify as 'small businesses' as defined by the SBA industry-based size standards."

Berger said in the letter it was Congress' intent with the CARES Act to assist all small businesses, including not-for-profits such as credit unions, and the SBA should clarify that eligible recipients under the paycheck protection program include FICUs.

Berger Dan

Dan Berger

In addition to Berger's letter, NAFCU joined with more than a dozen other trade groups to further bolster its request that cooperative businesses be allowed to participate in the paycheck protection program.

"The harsh economic consequences of COVID-19 do not discriminate by business structure," the groups wrote. "There are more than 65,000 cooperative businesses in the United States facing the same economic hardships as other business models. Collectively, cooperatives generate more than $75 billion in annual wages. It is imperative that cooperative businesses are treated equally with other business structures and able to access the [paycheck protection program]."

The Treasury Department and SBA Tuesday released lender and borrower information for the paycheck protection program. 

The Treasury guidance indicates that all FICUs will be allowed to offer loans under the program, but must apply through an expedited process to become an SBA lender.

DCUC Responds

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Anthony Hernandez

The Defense Credit Union Council (DCUC) has sent a letter to Treasury Secretary Steve Mnuchin and Carranza to express concerns with the recent guidance on the Paycheck Protection Program.

The letter outlines concerns and recommendations for:

  • Temporary removal of member business lending caps
  • Exempting credit unions from military lending act restrictions
  • Relaxing restrictions on expenses other than payroll
  • Extending the payback period to 10 years
  • Developing stronger protections against lender liability
  • Allowing credit unions to borrow (many are small businesses as well)

“The Defense Credit Union Council continues to seek ways we can partner with federal and state efforts to assist our nation’s working families and business owners in this time of need,” said DCUC President and CEO Anthony Hernandez. “We hope these recommendations are helpful in removing obstacles and providing more tools for our credit unions to use in the current crisis. Plus, doing so sends a clear signal that our nation recognizes the strong impact our credit unions have in fostering and sustaining entrepreneurship in order to successfully re-build our economy. As strong community partners, we are very happy to work with the Treasury Department and the Small Business Administration to provide a vehicle to extend relief to our nation’s business owners.”

Doubling of Interest Rate

As reports separately, the Treasury Department has just announced it has doubled the interest rate to 1% from 0.5% on the emergency loan program.  Mnuchin said the last-minute change was made in response to concerns raised by smaller financial institutions, which had complained the 0.5% rate would create “unacceptable losses for lenders," according to the Wall Street Journal. Some financial institutions have said they will not be ready today to offer the program, but Mnuchin said it will become effective anyway. 

“You will get the money. You will get it the same day,” Mnuchin said during a press conference, referring to companies that apply for the funds.  “You use this to pay your workers. Please bring your workers back. This is a very important program.”

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