Senate Approves Additional Funding Bill for SBA Loan Programs

After days of extensive negotiations, the U.S. Senate voted to approve new legislation on Tuesday, April 21, earmarking an additional $484 billion of new funding for critical COVID-19 relief programs including the Paycheck Protection Program (“PPP”) and other disaster loan and grant programs available through the Small Business Administration (“SBA”). Our analysis below is limited to specific provisions of this legislation that impact businesses and individuals applying for SBA loan programs.

The legislation includes the following appropriations:

The new legislation also extends the availability of Economic Injury Disaster Loans and Emergency Grants to agricultural enterprises with no more than 500 employees. The term “agricultural enterprises” means those small business concerns engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture and all other farming and agricultural-related industries per 15 U.S.C. 647(b).

Based on recently published (April 24) answers to SBA’s Frequently Asked Questions (FAQs), agricultural producers, farmers, and ranchers are eligible for PPP loans if: (i) the business has 500 or fewer employees or (ii) the business fits within the revenue-based sized standard, which is average annual receipts of $1 million. Additionally, agricultural producers, farmers, and ranchers can qualify for PPP loans as a small business concern if their business meets SBA’s “alternative size standard.” The alternative size standard” is currently: (1) maximum net worth of the business is not more than $15 million and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million. For all of these criteria, the applicant must include its affiliates in its calculations. See Applicable Affiliation Rules for Paycheck Protection Program (FAQ #34 as of April 24, 2020). Agricultural and other forms of cooperatives are also eligible to receive PPP loans as long as other eligibility requirements are met. (FAQ # 35 as of April 24, 2020). 

In addition, the legislation sets aside $60 billion of funding for the PPP for certain insured depository institutions, credit unions and community financial institutions as follows:

• $30 billion is set aside for loans made by:
  1. Insured depository institutions with consolidated assets between $10 billion and $50 billion; and
  2. Credit unions with consolidated assets between $10 billion and $50 billion.

• $30 billion is set aside for loans made by:
  1. Community financial institutions;
  2. Insured depository institutions with consolidated assets of less than $10 billion; and
  3. Credit unions with consolidated assets of less than $10 billion.

The legislation provides the following definitions:

• The term “credit union” means a State credit union or a Federal credit union, as those terms are defined, respectively, in section 101 of the Federal Credit Union Act (12 U.S.C. 1752)

• The term “community financial institutions” means –
  • a community development financial institution, as defined in section 103 of the Riegle Community Development and Regulatory 10 Improvement Act of 1994 (12 U.S.C. 4702);
  • a minority depository institution, as defined in section 308 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (12 U.S.C. 1463 note);
  • a development company that is certified under title V of the 23 Small Business Investment Act of 24 1958 (15 U.S.C. 695 et seq.); and
  • an intermediary, as defined in section 7(m)(11).

To further clarify these terms, we have included the following definitions referenced by the above citations, to provide additional guidance to Paycheck Protection Program loan applicants:

• Community Development Financial Institution means a person (other than an individual) that — (i)  has a primary mission of promoting community development; (ii)  serves an investment area or targeted population; (iii)  provides development services in conjunction with equity investments or loans, directly or through a subsidiary or affiliate; (iv)  maintains, through representation on its governing board or otherwise, accountability to residents of its investment area or targeted population; and (v)  is not an agency or instrumentality of the United States, or of any State or political subdivision of a State. (12 U.S.C. 4702)

• Minority Financial Institution means any depository institution that — (A) if a privately owned institution, 51% is owned by one or more socially and economically disadvantaged individuals; (B) if publicly owned, 51% of the stock is owned by one or more socially and economically disadvantaged individuals; and (C) in the case of a mutual institution where the majority of the Board of Directors, account holders and the community which it services is predominantly minority. (12 U.S.C. 1463)

• Development Company means — any State or local development company formed for the purpose of furthering the economic development of its community, and with authority to promote and assist the growth and development of small-business concerns in the areas covered by their operations.

• Intermediary means — (i) a private, nonprofit entity; (ii) a private, nonprofit community development corporation; (iii) a consortium of private, nonprofit organizations or nonprofit community development corporations; (iv) a quasi-governmental economic development entity (such as a planning and development district), other than a State, county, municipal government, or any agency thereof, if – (I) no application is received from an eligible nonprofit organization; or (II) the Administration determines that the needs of a region or geographic area are not adequately served by an existing, eligible nonprofit organization that has submitted an application; or (v) an agency of or nonprofit entity established by a Native American Tribal Government, that seeks to borrow or has borrowed funds from the Administration to make microloans to small business concerns under this subsection. (15 U.S.C 695 et seq.)

This legislation has since been approved by both the Senate and the House of Representatives. The President signed the legislation (H.R. 622) into law on Friday, April 24, 2020. Eligible businesses and individuals considering the Paycheck Protection Program should contact their lender immediately and organize or review the required documentation for their loan application, so they are prepared to submit their application promptly when the program reopens on Monday, April 27 at 10:30am. Eligible businesses and individuals considering applying for SBA disaster loans and/or emergency grants of up $10,000 should likewise be prepared to file once SBA starts accepting new applications.

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For additional information on the Paycheck Protection Program, SBA disaster loans and emergency grants, as well as other Federal, state and local relief measures, please visit our COVID-19 Resource Center on our website. If you have any questions, please contact your Tronconi Segarra & Associates advisor or a member of our response team at covid19team@tsacpa.com

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