SBA Adjusts PPP Payroll Calculation for Form 1040, Schedule C Filers

The Small Business Administration yesterday issued an interim final rule implementing recent changes to the Paycheck Protection Program. The IFR allows individuals who file an IRS Form 1040, Schedule C to calculate their maximum loan amount using gross income. SBA has issued updated forms for borrowers and lenders reflecting these changes and step-by-step loan amount calculations.

Previously, PPP rules defined payroll costs for individuals who file Form 1040, Schedule C as payroll costs (if employees exist) plus net profits, which is net earnings from self-employment. This formula effectively excluded many sole proprietors from obtaining PPP loans, particularly those with very little or negative net profit.

The IFR also stated that this calculation change will apply only to loans approved after the rule’s effective date. Borrowers that have already had their loans approved cannot increase their PPP loan amount based on the new maximum loan formula.

Additionally, businesses electing to use gross income to calculate their first-draw PPP Loan will only have a safe harbor presumption of making the necessary certification of economic necessity if they reported $150,000 or less in gross income on their Schedule C being used to apply for a first-draw PPP loan. Borrowers with reported gross income greater than $150,000 will be subject to additional SBA review.

Finally, the IFR removes a restriction on business at least 20% owned by an individual who was arrested for or convicted of a felony related to financial assistance fraud in the previous five years or any other felony within the previous year from obtaining PPP loans. It also removes a restriction on businesses at least 20% owned by an individual who is delinquent on student loan from receiving PPP loans.

SBA to Host Webinar Today on New PPP Loan Calculation

In related news, the SBA will host a webinar today at 3 p.m. CST on the new interim final rule on revisions to loan amount calculation for filers of IRS Form 1040 Schedule C. The webinar will not be recorded and is open to SBA lenders, SBA staff and other interested parties. Click here at 3 p.m. CST to join the Microsoft Teams live webinar.

Nichols Calls for Scrutiny of Chartering 'Loopholes' for Nontraditional Financial Firms

In an American Banker op-ed yesterday, ABA President and CEO Rob Nichols urged the Federal Reserve to “take a very careful look” at the risks posed by nontraditional financial firms including cryptocurrency companies looking to gain access to the payments system.

“These entities see the value in getting access to Federal Reserve payments systems like the Fedwire Funds Service and the Automated Clearinghouse Network but do not want to play by the same rules as traditional banks,” Nichols wrote, referencing a current movement in states and within the OCC to broaden the definition of entities eligible to receive a bank charter. “Finding chartering authorities that are willing to redefine what it means to be a bank introduces risks to the financial system’s safety and soundness, consumer protection laws and international reputation."

Increasingly, companies are seeking bank charters to access the nation's payment system while circumventing the strict regulations banks must adhere to, Nichols pointed out. For example, in 2019 Wyoming created a special-purpose depository charter targeting cryptocurrency businesses that requires those institutions to back up their deposits by holding 100% of their value in reserves, exempting them from FDIC or federal oversight.

“To protect consumers and the financial system, the Fed board should delay granting non-traditional entities like these access to master accounts or its payments services until a uniform policy can be adopted,” Nichols said. “This policy must first go through public notice and comment, and allow the Federal Reserve banks to use their discretion when evaluating requests from these nontraditional applicants.” Read the op-ed.

ABA Washington Summit to be Held Virtually March 16-17

You won’t want to miss the opportunity to join more than 1,600 bankers, ABA members and nonmembers, who have already registered for the 2021 Virtual ABA Washington Summit on March 16-17. The program each day will be from noon to 2 p.m. CDT and provide plenty of opportunities to hear what lawmakers and regulators are working on in this critical transition period for our nation.

The SDBA encourages all to register and invite their colleagues and staff to participate as well. This year’s virtual event offers a unique experience for bankers at all levels—without travel costs and time away from the bank. Everyone can have a direct impact on public policy discussions that benefit the industry, customers and communities. Let’s deliver a unified message when it matters most.

Trade Groups Call for Funding for USDA B&I Loan Program in COVID-19 Relief Bill

The ABA joined three other trade groups in a letter to House Rules Committee leaders last week urging them to include an amendment in the next COVID-19 relief bill that would provide funding for the U.S. Department of Agriculture’s business and industry guaranteed loan program. The amendment was offered by Rep. Glenn Thompson (R-Pa.).

The groups warned that the B&I program is expected to exhaust its current funding in the coming months and faces a projected $1 billion shortfall in loan authority this fiscal year. They noted that “a small allocation of approximately only $10 million” could resolve the shortfall and also urged lawmakers to extend similar relief to producers with USDA Rural Development guaranteed loans as they did to existing SBA borrowers in the CARES Act. Read the letter. For more information, contact ABA’s Ed Elfmann.

Dylan Clarkson Appointed to Minneapolis Fed Advisory Council

Photo of Dylan Clarkson SDBA Board of Director Dylan Clarkson, president and CEO of Pioneer Bank & Trust in Spearfish, was one of two community bank experts appointed to serve on the Federal Reserve Bank of Minneapolis' Community Depository Institutions Advisory Council (CDIAC).

Clarkson and Jenny Hosfeld, president and chief banking officer of Think Bank in Rochester, Minn., join nine other members of the Community Depository Institutions Advisory Council. Emily Hofer, CFO/director of Merchants State Bank in Freeman, also serves on the council.

“I am excited to welcome the new members,” Minneapolis Fed President Neel Kashkari said. “This council provides valuable insight on the state of financial institutions in the Ninth District and important perspective on the region’s economy.”

The CDIAC provides information, advice and recommendations to Kashkari from the perspective of financial institutions in the Ninth District with total assets of less than $10 billion. Members are appointed by the Minneapolis Fed president.

UMACHA to Hold Virtual 2021 Fraud Symposium

Payments fraud is a top concern and one of the most difficult challenges to manage. UMACHA and Wespay have partnered to offer the 2021 Fraud Symposium, a one-day virtual conference on March 16 from 10 a.m. to 5 p.m. CDT. The event will feature leading industry experts and professionals to discuss the timely trends in payments fraud and ways to mitigate risk, especially in a faster-payments environment.

Visit www.umacha.org to see the complete Fraud Symposium agenda, speakers, session descriptions and to register. The member rate is $340 per and $680 for non-members.

ABA to Hold The State of Ag Banking in 2021 Webinar

The ABA will hold a free webinar "The State of Ag Banking in 2021" on March 23 at 11:30 a.m. CDT. Participants will hear an update from ABA's experts on the latest in agricultural banking and receive an overview of ag banking resources, including:

An update on agricultural leadership in Congress and at USDA
Possible legislation in the ag world including ECORA
An update on PPP and agriculture

Learn more and register.

Compliance Alliance

Question of the Week

Question: Are investment properties with a loan purpose of Code 4 HMDA reportable?

Answer: Code 4 for “Loan Purpose” corresponds to “Other Purpose.” You do not report "Other" purpose loans that are "business purpose."

Reference:

Code 4—Other purpose

Data Point “(5) Loan Purpose, Reportable HMDA Data: A Regulatory and Reporting Overview Reference Chart for HMDA Data Collected in 2020: https://files.consumerfinance.gov/f/documents/cfpb_2020-reportable-hmda-data.pdf

The requirements of this part do not apply to: . . . (10) A closed-end mortgage loan or open-end line of credit that is or will be made primarily for a business or commercial purpose, unless the closed-end mortgage loan or open-end line of credit is a home improvement loan under § 1003.2(i), a home purchase loan under § 1003.2(j), or a refinancing under § 1003.2(p);"

§ 1003.3(c)(10): https://www.consumerfinance.gov/rules-policy/regulations/1003/3/#c-10

Not a member? Learn more about membership with Compliance Alliance by attending one of our live demos:

Tuesday, March 9, 10-11 a.m. CST

Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call 888.353.3933 or email and ask for our Membership Team.

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Questions/Comments
Contact Alisa Bousa, SDBA, at 605.224.1653 or via email.