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NAGGL Provides Summary of Updated HEROES Act Passed by the House
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Last week, the House Democrats released a new proposal, an updated version of HEROES Act, that lays out their updated approach for the next, much-anticipated COVID-19 relief package. This legislation was released on Monday evening, and just last night, the House voted on the measure, which passed on a party line vote. However, it is not expected that the Senate will be taking this measure up for consideration as Republicans and Democrats remain at odds amidst stalled negotiations. And looking forward, as it currently stands, it is largely expected that no deal for a next relief package will be reached until after the general election. Regardless, we wanted to make sure that we provided a link to the House language, as well as a brief, condensed summary of the provisions included in the bill that pertain to both PPP and the traditional 7(a) program as part of NAGGL’s continuous monitoring of any and all proposals related to small business recovery. Please note that if you are reviewing the bill, the language pertaining to small business lending is located in Division E of the legislation. 
 
The latest House Democrats proposal includes the following critical components for small business recovery (note—this is not an exhaustive, detailed list, but rather a quick summary of the key provisions):
  • Extends PPP lending authorization through December 31, 2020 with—
  • 10% of remaining and future funding set-aside for targeted relief for businesses with 10 or fewer employees, sole proprietors and self-employed, and for loans less than $250,000 to businesses in LMI areas;
  • Up to 30% of remaining and future funding for non-profit organizations of all sizes and types;
  • Up to 50% of remaining and future funding for second PPP loans to small businesses with less than 200 employees and a reduction in revenue
  • Creates a set aside of 25%, up to $15 billion, of remaining funding for distribution by community lenders, specifically CDFIs, CDCs, MDIs, and microloan intermediaries—but note that all lenders, including these community lenders, must abide by the small business set-asides stipulated above
  • Creates a second PPP loan program (“P4 loans”) allowing those entities with less than 200 employees with demonstrated quarterly revenue losses of at least 25% to receive a second PPP loan of up to $2 million with limits on businesses with more than 1 physical location, and a prohibition against publicly traded companies obtaining loans
 
Over-Arching PPP Policy Fixes -
  • Streamlined forgiveness: creates a 3- tier system to allow for simplified forgiveness for loans under $150,000 in the following way—
  • Less than or equal to $50,000: Borrower certifies they have met the program requirements, no documentation is required, and borrower must retain records;
  • Greater than $50,000 and Less than or equal to $150,000: Borrower submits a one-page simplified form, no documentation is required, and borrower must retain records;
  • Over $150,000: Governed by the current process
  • Addresses agent fee issues by stating that agent fees shall be paid by lenders only when they have a contractual relationship with the agent
  • Expands eligibility to include all nonprofits no matter their size or type of nonprofit, with a revenue reduction requirement for nonprofits larger than 500 employees
  • Expands list of allowable uses of proceeds and forgiveness to include PPE and supplier costs
  • Provides reinstatement or reapplication authority for small business borrowers to reapply for a new PPP loan in the event the borrower repaid or cancelled a previously approved loan, provided they meet program requirements
  • Provides authority for a PPP small business borrower to request an increase to the loan amount in the event the borrower reduced the loan amount, provided it meets the requirements of the program
 
Technical Fixes to PPP -
  • Clarification that the borrower may elect the covered period to be between 8 and 24 weeks
  • Clarifies underlying CARES Act re necessary documentation for sole proprietors and self-employed
  • Clarifies underlying CARES Act that the seasonal small business borrower may elect at their discretion any 12 week period between February 15, 2019 and December 31, 2019 as the basis for establishing the PPP loan amount
  • Clarifies underlying CARES Act that the waiver of the credit elsewhere test applies to all PPP loans made prior to the date of enactment of this Act, and on a go-forward basis for any future PPP loan, requires that loans greater than $350,000 will need to use the traditional 7(a) credit elsewhere test
  • Clarifies underlying CARES Act to ensure that all PPP loan requirements (including fee waivers, the credit elsewhere waiver, personal guaranty waiver, and deferral eligibility) applies for the life of the loan
  • Clarifies that the interest rate on PPP loans can only be calculated on a simple basis, not compounding
  • Clarifies underlying CARES Act to state that the processing fees to lenders are due 5 days after reported disbursement
  • Addresses technical issues in underlying CARES Act to clarify that the small business borrower may be eligible for both PPP and EIDL loans as long as they are for different purposes, even after the date of enactment of the CARES Act
 
7(a) Stimulus Provisions -
$1 billion provided for carrying out these provisions (as well as some 504 stimulus provisions)
  • Increases 7(a) loan guarantee to 90% through September 30, 2021
  • Increases SBA Express loan maximum amount to $500,000 beginning on January 1, 2021, and returning to $350,000 after September 30, 2021
  • Increases Express guarantee for a loan less than or equal to $350,000 to 75% (greater than $350,000 stays at 50% guarantee) through September 30, 2021
  • Provides lender (ongoing) and borrower (up-front guaranty) fee waivers for 7(a) loans through September 30, 2021
  • Provides flexibility in deferral periods to create parity between loans that are sold and not sold by permitting lenders to provide deferrals for up to 1 year for all loans, with the ability to provide additional deferment if the borrower provides documentation justifying the additional period, and requires SBA to buy back the loan if an investor declines to provide the extended deferral on sold loans
  • Increases the 7(a) authorization cap to $75 billion through September 30, 2021
 
Section 1112 Extensions -
  • Extends P&I payments for borrowers to either 6, 12, or 18 months depending on certain loan criteria
  • Fixes SBA implementation issue by clarifying that borrowers are eligible for 1112 payments without regard to when the loan is fully disbursed in order to clarify intent that eligibility be based on the date on which the loan was approved by SBA
 
The provisions above solve a large number of the concerns that NAGGL has continuously raised over the past six months. In particular, this proposal is by far the most comprehensive approach to tackling a number of outstanding PPP technical issues that have existed since enactment of the original CARES Act, which, if not addressed, will continue to result in real consequences for borrowers should there be a PPP extension or second round. The House Democrats’ proposal also solves a number of over-arching, larger policy issues that have plagued PPP and continue to affect the program during the forgiveness process. And, this is the only holistic approach that has so far included traditional 7(a) loan program stimulus provisions, a much-needed component of meaningful recovery, and critical extensions for Section 1112 payments that would provide stabilizing relief for borrowers and the SBA portfolios as a whole.
 
We know that the proposed legislation is not perfect and recognize that the tiers in the streamlined forgiveness process could be set slightly higher to deliver even more benefit. We also understand that crafting appropriate language to strengthen the hold harmless language for lenders is an ongoing conversation with the Hill and we look forward to continuing that dialogue as different approaches to that provision are examined. Finally, we understand from conversations with the Hill that the bill’s Section 1112 extension language may continue to see tweaks as the Hill works through the best approach with the lending industry. These remaining issues speak to a legislative process that can be messy and we believe that some of these issues can and will be resolved with ongoing conversations throughout the process. However, taken on the whole, this package tackles a large volume of concerns presented by the lending industry on behalf of both borrowers and lenders, and NAGGL believes it is the best and most comprehensive path forward we have seen thus far.
 
As always, we will continue to keep you updated should there be any substantive movement. In the meantime, as you continue to face the task of updating your institution and borrowers, we remind you to recognize that much of the movement on Capitol Hill right now is unfortunately noise and political posturing. For our part, we will continue voicing the critical need for Capitol Hill to address very timely issues that the small business economy cannot wait on and work on policy that could serve as real solutions. Thank you for all you do on the frontlines!

 

All rights in letters and unsolicited editorial or graphic material will be treated as unconditionally assigned for publication and copyright purposes and subject to NAGGL's editorial comment. © 2020 All rights reserved. Nothing may be reprinted in whole or part without written permission from NAGGL.

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