The Small Business Administration has told borrowers under its Paycheck Protection Program how to apply for loan forgiveness but has not yet told credit unions and banks how those applications should be handled—a problem that could be particularly thorny for credit unions.
“The need for borrowers to understand the loan forgiveness rules is especially urgent for credit union lenders,” Brian Knight, NASCUS’ vice president and general counsel, wrote in a letter to the agency Friday. “Small business borrowers are not mere customers of a credit union they are members of the credit union.”
The SBA released the application on Friday for PPP borrowers to use to apply for loan forgiveness. Under the PPP program, borrowers may apply for forgiveness if they use 75% of the loan to keep employees on their payrolls.
The agency said that guidance for how lenders should process those applications would be issued soon.
Credit union trade groups have emphasized the urgency for such guidance. “Credit unions and other lenders need detailed guidance on all processes surrounding loan forgiveness as conflicting processes are likely to create problems and lead to litigation,” Lance Noggle, CUNA’s senior director of advocacy and counsel wrote in a letter to the agency.
For instance, one section of the law creating the program states that the amount forgiven cannot exceed the principal amount of a PPP loan. But an interim final rule issued by the SBA states that the full amount principal and any accrued interest may be forgiven.
In addition, Nogle wrote, financial institutions are unclear how to handle a loan that is only partially forgiven.
The SBA’s failure to provide financial institutions with tools to prepare borrowers to apply for loan forgiveness has caused frustration for credit unions and members, Kaley Schafer, NAFCU’s regulatory affairs counsel told the SBA. “The SBA’s lack of guidance on this issue had caused numerous member frustrations and concern over whether their loans will be forgiven,” she wrote.
Knight emphasized the unique quality of the PPP program “Of course, the criteria and process for PPP loan forgiveness will be unique and hence uniquely unfamiliar for all participants,” he wrote. “We respectfully submit, therefore, that the SBA needs to expedite release of comprehensive rules for loan forgiveness.”