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Loans to Directors Under the SBA Paycheck Protection Program

We wanted to make you aware that under the Interim Final Rule issued by the SBA yesterday, businesses that are not eligible for Payroll Protection Program (“PPP”) loan guaranties are identified in 13 C.F.R. 120.110 and SOP50 10. Under those guidelines, businesses of which a Lender or any of its Associates owns a financial or equity interest are not eligible for a loan guaranty under Section 7(a). An Associate is defined in 13 C.F.R. 120.10 as a Lender’s officer, director, key employee, or holder of 20% or more of a business’ stock.

As a result, we do not believe a loan made to a business of which a Lender’s officers, directors, key employees or holders of 20% or more of the business’ stock are involved qualifies for the 100% guaranty of the PPP until and unless the SBA amends its relevant regulations.

Additionally, since the forgiveness for PPP loans authorized under §1106 of the CARES Act is limited to “covered loans,” which are loans guaranteed under the PPP of Section 7(a), it is likely that any such loan would not qualify for forgiveness either.

© 2020 Jones Walker LLP


About this Author

Robert L. Carothers, Jones Walker, Banking Services Lawyer, Financial Regulation Attorney

Rob Carothers is a partner in the firm's Banking & Financial Services Practice Group. His practice is focused primarily in the area of financial institution regulation. He has experience advising state banks, national banks, thrifts, and their holding companies on a wide range of regulatory matters, including:

  • Affiliate transactions and compliance with Sections 23A and 23B of the Federal Reserve Act and Regulation W and Anti-Tying Rules

  • Applying for CDFI status

  • ...
Craig N. Landrum, Jones Walker, Banking Industry Lawyer, Insurance Representation Attorney

Craig Landrum is a partner in the firm's Banking & Financial Services Practice Group and practices from the firm's Jackson office. His practice focuses on bank regulatory law, corporate law, mergers and acquisitions law, and securities law. He also has experience representing insurance companies and agencies with regard to corporate and regulatory matters, including the licensing of bank subsidiaries as general insurance agencies and underwriters.

Mr. Landrum is a graduate of Mississippi State University, where he received a bachelor of science degree, with special distinction, and The University of Mississippi School of Law, where he received a juris doctor degree. While in law school, Mr. Landrum was a member of the Mississippi Law Journal and Phi Delta Phi. He was also a member of Phi Kappa Phi, Omicron Delta Kappa, Blue Key, and Beta Gamma Sigma. Currently, he is a member of the Capitol Area Bar Association, the Banking Law and Consumer Finance Law Committees of the American Bar Association, The Mississippi Bar, the Mississippi Bankers Association, where he has previously served as Chairman of the Bank Attorney's Committee, and the Louisiana Bankers Association.