The Interim Final Rule issued late last week by the SBA limits the availability of PPP loans to businesses engaged in certain activities.  Among them is banking and other lending activities. We believe that the exclusion will be interpreted to include equipment financing.

Paycheck Protection Program loans are available only for eligible businesses.  Unfortunately, the SBA Interim Final Rule adopts the definition of ineligible businesses generally applicable to all other 7(a) programs, including financial businesses primarily engaged in the business of lending, such as banks, finance companies, and factors. 13 CFR 120.110. Because the rule relates back to the existing definition (and not a special definition enacted for PPP) small equipment finance companies and lenders will be excluded from eth program.

A policy restricting SBA loans to a lender may make sense generally — on the idea that the SBA should not serve as a source of low-cost funds for lenders to re-lend. To the extent a policy rationale exists for Section 120.110(b)’s exclusion of small lenders from being eligible to obtain “regular” Section 7(a) loans, it is simply not applicable to PPP 7(a) loans, the purpose of which is to assist small businesses to meet their payroll and operating costs during this economic crisis.  Certainly, small lenders have the same needs as eligible businesses – the payment of payroll, rent, utilities, and interest payments on debts in existence prior to February 15, 2020; and they would undoubtedly be willing to certify that they would be so used.

There has been strong pressure on this issue brought to bear on Treasury and the SBA by a variety of trade organizations.  Although it is unclear if a change will be made, companies engaged in equipment financing may want to consider assembling the information and documentation required to quickly submit an application should they become eligible.