As Of May 20, 2020
As we monitor all developments related to the EIDL and PPP programs from the Congress, SBA, and Treasury, we have seen a few shifts that are likely to affect pawnbrokers’ decisions going forward. We also continue to do everything possible using the NPA’s GRC resources to look forward and anticipate the next wave of COVID-19-related legislation from Congress, guidance from the CFPB, and other agencies that may be involved – bank regulators, Department of Justice, and the Department of Labor.
This update covers questions related to both the EIDL and PPP loan programs the SBA administers.
Did SBA change the EIDL Program? Answer: Yes. Earlier in May, SBA stopped taking any EIDL applications except from those in the agricultural sector and reduced the maximum loan amount to $150,000. If your application was submitted prior to the change, it is possible that your loan will be granted. But it’s also possible you will be denied as some pawnbrokers have seen in the past week or so.
Must pawnbrokers who received $10,000 advances repay those funds if their EIDL applications are denied? In light of all the unknowns regarding these emergency programs, this is a reasonable question. Answer: No.
If a pawnbroker received the $10,000 EIDL advance and also obtained a PPP loan, does the $10,000 EIDL advance affect the PPP loan forgiveness amount that is expected? Some pawnbrokers applied for both programs and others may yet apply for PPP loans until either June 30, 2020 or when the funds run out. Do the $10,000 EIDL advances count towards reductions in PPP loan forgiveness amount? Answer: Yes.
Has the SBA changed the requirement that at least 75% of PPP loan funds be used for payroll and payroll-related expenses? Although the CARES Act did not require SBA to limit the use of PPP funds in this manner, the SBA has maintained it despite many efforts to get it to change the 75/25 split. Answer: No change in the 75/25 split, so far.
Has the SBA changed the requirement that the PPP funds be spent within eight weeks (56 days) after the lender disbursed the PPP loan funds to the borrower? Answer: So far, in order to qualify for loan forgiveness the PPP funding must be spent in either the basic covered period of eight weeks (56 days) after the disbursement date or the alternate payroll covered period that commences with the first pay period following the PPP loan disbursement date. The HEROES Act, which the House of Representatives passed on Friday, May 15, (but not the Senate) would extend this period. But, until the HEROES Act or another COVID-19 recovery bill is enacted, we don’t expect SBA to change its mind.
Please Note: The eligibility clarification for pawn in the original SBA section 7(a) loans that carried over to the PPP loan program may not be applicable to the same extent in the EIDL program. Despite substantial efforts to find the ‘official’ answer, we do not yet have one – but are still trying.
This GRC Update is not intended and should not be construed as legal advice to NPA members. Members should consult their own lawyers for legal advice.
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