Federal Reserve: Rule Change Announced to Bolster the Effectiveness of the SBA’s Paycheck Protection Program

The Federal Reserve Board on Friday announced a rule change to bolster the effectiveness of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The change will temporarily modify the Board’s rules so that certain bank directors and shareholders can apply for PPP loans for their small businesses.

To prevent favoritism, Board rules limit the types and quantity of loans that bank directors, shareholders, officers, and businesses owned by these persons can receive from their related banks. These requirements have prevented some small business owners from accessing PPP loans—especially in rural areas.

The SBA recently clarified that PPP lenders can make PPP loans to businesses owned by their directors and certain shareholders, subject to certain limits and without favoritism. The Board’s change will allow those individuals to apply for PPP loans, consistent with SBA’s rules and restrictions. The change only applies to PPP loans.

The Board is providing the temporary change to allow banks to make PPP loans to a broad range of small businesses within their communities. The SBA explicitly has prohibited banks from favoring in processing time or prioritization a PPP loan application from a director or equity holder, and the Board will administer its rule change accordingly.

The rule change is effective immediately and will be in place while the PPP is active. Comments will be accepted for 45 days after publication in the Federal Register.

Read the full rule change.

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