Removing Barriers Blog

Paycheck Protection Program (PPP) Loans to Credit Unions
Posted April 02, 2020 by dyi

The Paycheck Protection Program (PPP) Small Business Administration (SBA) loans are an integral part of the CARES Act that President Trump signed into law last week.  According to the SBA, a PPP “loan is designed to provide a direct incentive for small businesses to keep their workers on the payroll.” SBA will forgive PPP loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. The CARES Act makes clear that credit unions, as with other SBA lending programs, are eligible to make these loans, but can credit unions borrow through this program?

CUNA staff attorneys and outside counsel have analyzed credit unions’ eligibility as PPP borrowers, and agree that according to 13 CFR § 120.110(b), credit unions and other businesses  “primarily engaged in the business of lending” are not eligible PPP borrowers.§ 120.110(a) excludes non-profit businesses, but does indicate that for profit subsidiaries are eligible for SBA loans. We have been asked if Sec. 1102(a)(2)(d)(i) of the CARES Act, which lists organizations subject to “increased eligibility” for PPP loans, includes credit unions since it includes “nonprofit organizations.” This section wouldn’t apply because in Sec. 1102(a)(2)(A)(vii), a nonprofit is defined as an “organization that is described in section 501(c)(3) of the Internal Revenue Code.” Credit unions fall under 501(c)(5) and 501(c)(14) of the Internal Revenue Code.

It is possible that SBA can make credit unions eligible for PPP through a change in their rules. CUNA is working with SBA and NCUA to see if the SBA is willing to explore these changes as many credit unions could use access to these funds to provide economic relief and offset extraordinary costs related to the pandemic.