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#2234843 - 04/15/20 03:21 PM PPP and Reg O (Board Approval Required?)
Tarhe Offline
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Joined: Nov 2006
Posts: 1,403
California
One of our Board members has a business and is obtaining a PPP loan. Since the PPP is 100% government guaranteed, does Board approval apply under Reg O?

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#2234846 - 04/15/20 03:49 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
rlcarey Online
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rlcarey
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Galveston, TX
Has there been a change that would allow a director for a business that they control to get a PPP loan from their own bank?
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#2234848 - 04/15/20 04:07 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
Tarhe Offline
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California
I have not been involved in the PPP program - is a director not permitted to get one from their own bank? I'll look into that. Thanks!

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#2234849 - 04/15/20 04:09 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
rlcarey Online
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rlcarey
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See Question 11 here from the ICBA. I am not aware of any additional clarifications.

https://www.icba.org/advocacy/indus...ess-lending/community-bank-covid-19-faqs
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#2234850 - 04/15/20 04:14 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
Tarhe Offline
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Joined: Nov 2006
Posts: 1,403
California
thank you so much!!

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#2234853 - 04/15/20 04:27 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
Tarhe Offline
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Joined: Nov 2006
Posts: 1,403
California
Looks like they issued updated FAQs/guidance recently that say it’s OK. See 2. a. on page 14.

https://home.treasury.gov/system/fi...rements-for-Certain-Pledges-of-Loans.pdf

a. Are eligible businesses owned by directors or shareholders of a PPP Lender permitted to
apply for a PPP Loan through the Lender with which they are associated?
The Administrator recognizes that, unlike other SBA loan programs, the financial terms
for PPP Loans are uniform for all borrowers, and the standard underwriting process does
not apply because no creditworthiness assessment is required for PPP Loans.
Consequently, there is no meaningful risk of underwriting bias or below-market rates and
terms. The Administrator also recognizes that many directors and equity holders of PPP
Lenders are owners of unrelated businesses. For those reasons, the Administrator, in
consultation with the Secretary, has determined that SBA regulations (including 13 CFR
120.110 and 120.140) shall not apply to prohibit an otherwise eligible business owned (in
whole or part) by an outside director or holder of a less than 30 percent equity interest in
a PPP Lender from obtaining a PPP loan from the PPP Lender on whose board the
director serves or in which the equity owner holds an interest, provided that the eligible
business owned by the director or equity holder follows the same process as any similarly
situated customer or account holder of the Lender. Favoritism by the Lender in
processing time or prioritization of the director’s or equity holder’s PPP application is
prohibited. The Administrator cautions, however, that Lenders should comply with all
other applicable state and federal regulations concerning loans to associates of the
Lender. Lenders should also consult their own internal policies concerning lending to
individuals or entities associated with the Lender.

The foregoing paragraph does not apply to a director or owner who is also an officer or
key employee of the PPP Lender. Officers and key employees of a PPP Lender may
obtain a PPP Loan from a different lender, but not from the PPP Lender with which they
are associated. SBA also reminds Lenders that the “Authorized Lender Official” for each
PPP Loan is subject to the limitations described in the Lender Application Form, which
states in relevant part: “Neither the undersigned Authorized Lender Official, nor such
individual’s spouse or children, has a financial interest in the Applicant [Borrower].”

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#2234860 - 04/15/20 04:59 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
rlcarey Online
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rlcarey
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Galveston, TX
That says the same thing as ICBA said. Unless the director holds less than a 30% interest in the related interest, it would not be allowed.

I think I misread that. A related interest of any director or shareholder who owns less than 30% of the PPP lender would be eligible.

But back to your Regulation O question, I believe it is still an extension of credit whether government guaranteed or not. Government guaranteed loans are not specifically excluded under Sec. 215.3 from being an extension of credit.
Last edited by rlcarey; 04/15/20 05:26 PM.
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#2235242 - 04/20/20 03:29 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
marcy Offline
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marcy
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Posts: 120
With the new Fed interim rule change on PPP, they are excluding these loans from the definition of "extension of credit" as soon as it is published in the Federal Register. Therefore, it would not be subject to the quantitative limits nor prior board approval. Is your interpretation the same?

https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200417a1.pdf
Last edited by marcy; 04/20/20 03:33 PM. Reason: quantitative still stands for executive officers
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#2235245 - 04/20/20 03:32 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
rlcarey Online
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rlcarey
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Galveston, TX
Glad they were so timely.
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#2248691 - 02/04/21 05:12 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
Compliance Poster Offline
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Joined: Sep 2001
Posts: 440
Do you know if the PPP loans continue to be exempt under Regulation O for directors or shareholders?

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#2248698 - 02/04/21 05:57 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
rlcarey Online
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rlcarey
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Galveston, TX
They would have to do another amendment as that amendment ended on June 30, 2020 and I have not seen one

(8) Except for purposes of § 215.5, a loan:

(i) In which the participation by the Small Business Administration on a deferred basis is 100 percent pursuant to section 1102(a)(1) of Public Law 116-136 (to be codified at 15 U.S.C. 636(a)(2)(F));
(ii) That is made during the period beginning on February 15, 2020, and ending on June 30, 2020; and

(iii) That would not be prohibited by 13 CFR 120.110(o) or rules or interpretations thereof issued by the Small Business Administration.
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#2248778 - 02/05/21 07:33 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
Compliance Poster Offline
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Posts: 440
So this means we would have to be careful of the quantitative limits and prior board approval?

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#2248787 - 02/05/21 08:26 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
Unless they extend those provisions again, yes.
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#2248958 - 02/09/21 10:07 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2249004 - 02/10/21 04:40 PM Re: PPP and Reg O (Board Approval Required?) Tarhe
John Burnett Offline
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John Burnett
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Cape Cod
The new cutoff date is 3/31/2021. That's the end date in current law for new PPP loans.
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