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Restriction on PPP Loans to Insiders and Their Close Relatives

On Friday, April 3, we posted that under the Interim Final Rule issued by the Small Business Administration (SBA) on April 2, businesses owned by an officer, director, key employee, or 20% or more shareholders of a lender are not eligible for a Paycheck Protection Program (PPP) loan from that lender. As noted at the top of page 8 of the Interim Final Rule, “[b]usinesses that are not eligible for PPP loans are identified in 13 CFR 120.110.” Section 120.110(o) says “[b]usinesses in which the Lender . . . or any of its Associates owns an equity interest” are ineligible. “Associate” of a lender is defined in 13 CFR § 120.10(1) as “[a]n officer, director, key employee, or holder of 20 percent or more of the value of the Lender’s . . . stock.” Thus, any business in which any one of those types of individuals owns any equity interest would be disqualified from a PPP loan made by that lender.

Since that alert was posted, you should be aware of one other important aspect of loans under the PPP. According to 13 CFR § 120.10(1)(ii) and the SBA’s guidance in SOP 50 10, this restriction applies not only to a lender’s officers, directors, key employees, and 20% or more shareholders, but also to businesses in which a “Close Relative” of any such individual has an interest. A “Close Relative” is defined in 13 CFR § 120.10 as “a spouse; a parent; or a child or sibling, or the spouse of any such person.”

We have been asked numerous times since our last alert whether a bank’s Associates, including directors, could obtain a PPP loan from a lender with which they are not affiliated. We have no reason to believe that they cannot participate through an unaffiliated lender since 13 CFR § 120.110(o) only prohibits loans to businesses in which Associates of the Lender have an equity interest.

© 2020 Jones Walker LLPNational Law Review, Volume X, Number 98



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.

Ronald A. Snider Bank Regulatory Law & Corporate Law Jones Walker Mobile, AL

Ron Snider is a partner in the Corporate Practice Group, where he focuses his practice on bank regulatory law and corporate law. 

From 1973 to 1979, Ron was with the Federal Home Loan Bank Board, first in the Office of the General Counsel, and then as assistant secretary. He also served as assistant secretary of the Federal Home Loan Mortgage Corporation from 1976 to 1979.

In addition to his active involvement in a number of professional associations, Ron is a member, and past chairman, of the board of the Alabama Public Library Service, serves on the Gulf...

Thomas Walker Jr Corporate Attorney Jones Walker Jackson, MS

Tom Walker is a partner in the Corporate Practice Group. He focuses on commercial and regulatory matters in the financial services industry, with a depth of experience representing financial institutions.

Prior to joining the firm, Tom served as executive vice president and director of a community bank in Forest, Mississippi. His experience as general counsel, chief operating officer, chief financial officer, and chief investments officer in the financial services sector enhances his ability to provide legal services to his clients.

Tom previously served as chairman of...