May 18, 2020
Paycheck Protection Program – Loan Forgiveness Instructions, New Guidance and Potential Changes to the Program
- The SBA released the loan forgiveness instructions and application form for PPP loans on May 15th and additional guidance will be issued soon.
- The SBA also updated their FAQ (see questions 46 and 47) on May 13th including relief for the “good faith” certification for PPP borrowers with loans under $2 million. “Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”
- The SBA extended the PPP loan repayment safe harbor from May 14th to May 18th.
- Congress and Treasury are reportedly working on possible changes to PPP including giving business owners more flexibility and time to spend the loan proceeds. The HEROES Act passed in the House on May 15th (unlikely to pass in the Senate) includes expanding the current 8-week period to use the funds to 24 weeks, reducing the 75% payroll requirement and extending the PPP program through the end of the year.
Summary of Paycheck Protection Program Round 2 (data as of May 16, 2020)
- Through May 16th, $195.17 billion in PPP loans have been approved by the SBA in the second round of funding, totaling 2.764 million small business loans through 5,479 participating lenders. The average loan size of round two of PPP is $70,622.
Floating-Rate 7(a) Pools
- SBA 7(a) prepayment speeds for the month of May were released last week. After three straight months of declining prepayments for both loan pool types, Equipment loan pools increased from 12.0 to 12.4 CPR, while Real-Estate loan pools decreased from 13.4 to 12.5.
- It is critically important to evaluate pools at a wide variety of speeds and using a prepayment vector. Our Performance Profile includes an analysis of your 7(a) pools layered against a historical prepayment vector. Please let your Representative know if you would like to run a Performance Profile.
Fixed-Rate DCPC Pools
- Supply in the secondary market for DCPC product has been light the last several weeks, while investor demand for the product remains high.
- Current yield spreads in SBA DCPCs remain wide but spreads tightened approximately 10 bps last week to 100 bps.
- The May fixed-rate SBA DCPC auction drew strong investor interest as they offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.
- The May fixed-rate SBA DCPC auction included 10-year, 20-year, and 25-year maturities.
- Total issuance in the May auction of $409.9M declined $11.3M (-2.7%) from the prior month, which was the highest level of issuance since July 2013.
- Yield spreads tightened in the May auction but remain wider than the twelve-month average for all maturity terms.
- Spreads tightened 21 bps month over month for the longer maturity terms (81 bps yield spread for the 25-year term and 68 bps for the 20-year term).
Dan Stimpson, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP