The Fed Communicates Rule Change For The SBA’s PPP

Federal Reserve

To enhance the effectiveness of the Paycheck Protection Program (PPP) of the Small Business Administration (SBA), the Federal Reserve Board announced a rule change. The modification will temporarily change the rules of the Board so “certain bank directors and shareholders can apply for PPP loans for their small businesses” per a press release from The Fed.

The Federal Reserve Board said the SBA recently made clear that lenders can make PPP loans to companies owned by their directors and some shareholders “subject to certain limits and without favoritism.” The modification will let those people ask for PPP loans, in line with the limitations and rules of the SBA. It only relates to PPP loans.

Board rules restrict the kinds and number of loans that bank directors, officers, shareholders and companies owned by those individuals can get from their related banks. But the Federal Reserve Board noted that these mandates have prevented some owners of small companies from accessing PPP loans, particularly in less populated regions.

According to the press release, “The Board is providing the temporary change to allow banks to make PPP loans to a broad range of small businesses within their communities. The SBA explicitly has prohibited banks from favoring in processing time or prioritization a PPP loan application from a director or equity holder, and the Board will administer its rule change accordingly.”

The Board said the rule change “is effective immediately and will be in place while the PPP is active.”

In separate news, it was reported that the PPP has approved over one million loans for a $247.5 billion total gross dollar value as of April 13. The SBA stated in the “Paycheck Protection Program Report” that those loans were sourced throughout 4,664 lenders.

It has also been noted that small and medium-sized businesses (SMBs) with fewer than 500 staffers can get 2.5 times their W-2 payroll if they apply. The PPP loans are part of the federal coronavirus relief package passed by Congress last month.