SBA Update

April 27, 2020

$484 Billion Stimulus Package includes $310 Billion for Paycheck Protection Program (PPP) Loans

President Trump signed another relief bill into law on April 24th. The $484 billion relief package replenishes funds for small business PPP loans ($310B), includes SBA disaster loans ($60B), provides funding for hospitals ($75B) and COVID-19 testing ($25B). The SBA will resume accepting PPP applications from participating lenders on Monday, April 27, 2020 at 10:30am EDT.

Treasury and the SBA Tighten PPP Eligibility

On April 23rd Treasury and the Small Business Administration (SBA) tightened the requirements for businesses to get those funds. Companies must certify in good faith that the “loan request is necessary” due to a lack of “other sources of liquidity.” “It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith,” the agency said of companies’ need to vouch for the urgent need for funding. Any company that already received PPP funds but shouldn’t have based on these requirements can return the money by May 7 without the risk of penalty.

Federal Home Loan Banks to Accept Paycheck Protection Program Loans as Collateral

On April 23rd the Federal Housing Finance Agency announced that Federal Home Loan Banks can accept PPP loans as collateral when making advances to their members.

Paycheck Protection Program Liquidity Facility

On April 9th the Fed announced The Paycheck Protection Program Liquidity Facility (PPPLF) which extends credit to eligible financial institutions that originate SBA guaranteed PPP loans, taking the loans as collateral at face value.

Regulators Change Capital Rules for PPP Loans

PPP loans will be assigned a weight of zero percent under the risk-based capital rules. Federal Banking Regulators also issued an interim final rule that will allow financial institutions to neutralize the effect of PPP loans financed under the PPPLF on regulatory capital ratios. This relief applies to both risk-based and leverage capital ratios, including the Community Bank Leverage Ratio. The capital relief is effective immediately.

Fixed-rate SBA DCPC and SBIC’s offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads. 

Fixed-Rate DCPC Pools

Fixed-Rate SBIC Debentures

Floating-Rate 7(a) Pools

Dan Stimpson, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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