COVID-19 Update: The Paycheck Protection Program – Loan Participation Transactions

On Friday, April 24, 2020, the Small Business Administration ("SBA") addressed some of the confusion regarding secondary market transactions involving Paycheck Protection Program ("PPP") loans, at least with respect to participation transactions.  In a Procedural Notice to SBA and PPP lenders, the SBA announced that it was lifting certain restrictions on participation transactions involving such PPP loans.¹

As explained in our prior Clients & Friends memos, "COVID-19 Update: The SBA's Paycheck Protection Program Explained" and "COVID-19 Update: The Paycheck Protection Program and the Secondary Market," PPP loans are a form of SBA Section 7(a) loan, a traditional form of SBA guaranteed loan.  Confusion has existed since the inception of the Program due to the CARES Act's statutory language and the nature of the PPP loans and how they are regulated.  Section 1102(a) of the CARES Act provides that PPP loans "shall be eligible to be sold in the secondary market