20200410-德勤-The_CARES_Act_s_Paycheck_Protection_Program__Impact_on_fnancial_services_3页_191kb

CARES Act's Paycheck Protection Program (PPP): Summary

Core Content

The Paycheck Protection Program (PPP), established under the CARES Act signed into law on March 27, 2020, is a key component of the U.S. government's response to the economic impact of the coronavirus pandemic. It aims to provide short-term financial relief to small businesses and non-profits with 500 or fewer employees, enabling them to retain employees and cover essential operational costs.

The program is administered by the Small Business Administration (SBA) in partnership with the U.S. Treasury Department, and offers guaranteed loans up to $10 million. These loans are forgivable if the funds are used for eligible expenses (e.g., payroll, rent, utilities) and employees are retained for eight weeks after loan disbursement. However, loan forgiveness is reduced if there is a decrease in full-time headcount or if more than 25% of the loan is used for non-payroll purposes.

Key Features of the PPP

• Loan Size: Up to 2 months of average monthly payroll costs plus 25% of that amount, with a $10 million cap.
• Eligibility: Small businesses and non-profits with 500 or fewer employees (subject to industry-specific standards).
• Loan Forgiveness: Conditional on retaining employees and using funds for eligible expenses.
• Funding Source: $349 billion appropriated under the CARES Act.
• Application Timeline: Open until June 30, 2020, or until funds are exhausted.
• Lender Participation: Includes federally insured depository institutions, credit unions, and Farm Credit System institutions. Additional lenders can participate if they meet specific criteria, including BSA compliance and a history of lending.

Interim Final Rule and Lender Obligations

On April 2, 2020, the SBA and Treasury issued an Interim Final Rule to outline the program's terms, including:

• Expansion of eligible lenders.
• Lenders will be held harmless for borrower non-compliance.
• BSA-compliant AML programs required for non-bank lenders.
• Interest rate increased to 1%, with a maturity date of 2 years and payment deferment of 6 months.

Application Process

• Applications began on April 3, 2020, with independent contractors and self-employed individuals eligible starting on April 10.
• Most applications are expected to be submitted online.
• The goal is to disburse funds within 24 hours.
• The SBA will reimburse lenders for processing fees (5% to 1% of the loan amount).

Affiliation Rule Clarification

• On April 3, 2020, the Treasury issued guidance clarifying the affiliation rules for small business eligibility.
• Minority investors with less than 50% voting stock may still be considered controlling shareholders in certain cases.
• This guidance is intended to expand access to PPP loans for startups and other entities not dominated by a single investor.
• Ongoing discussions with Congress and the Treasury aim to further clarify how affiliation rules apply to PPP loans.

Immediate and Longer-Term Considerations

Immediate Questions for Financial Firms:

• Are they prepared to handle the expected surge in applications and accelerated processing timelines?
• How will fintech firms and non-bank lenders be affected if they do not meet the delegated authority requirements?
• What data elements should be captured at loan origination to support future reporting?
• How do affiliation rules apply to private equity-backed companies?

Longer-Term Considerations:

• Will the SBA and lenders have the necessary processes, governance, and technology to manage the program effectively?
• How will loan quality be assessed after forgiveness decisions?
• What will be the servicing arrangements for loans purchased through the Federal Reserve's facility?
• Could the program be extended or modified if its economic impact is insufficient?

Conclusion

The PPP is a large-scale initiative with significant implications for the financial services industry, particularly in terms of operational capacity, regulatory compliance, and technology readiness. While the program aims to support small businesses, it also raises questions about long-term sustainability, risk management, and regulatory oversight. Financial institutions are advised to monitor ongoing developments and prepare for potential changes in program structure and requirements.

Contact Information

• Tom Nicolosi – Principal, Deloitte Risk & Financial Advisory
• Deron Weston – Principal, Deloitte Consulting
• Irena Gecas-McCarthy – FSI Director, Deloitte Center for Regulatory Strategy
• Austin Tuell – Manager, Deloitte Risk & Financial Advisory
• Kyle Cooke – Senior Consultant, Deloitte Risk & Financial Advisory

This summary provides an overview of the PPP's structure, eligibility, and implications for the financial services sector, based on the information available as of April 10, 2020.