The Financial Industry Regulatory Authority has clarified its position on advisors taking small-business loans as part of the COVID-19 stimulus package.
On Monday, the regulator said advisors will not have to report the forgivable loans under the Paycheck Protection Program on FINRA Form U4, the securities industry’s registration and transfer form.
The issue was raised last week by popular blogger and planner Michael Kitces of Kitces.com, who wrote online: “Advisors contemplating PPP loans with the intention of seeking forgiveness should also consider the potential impact of such forgiveness on their U-4, and whether such forgiveness may result in a disclosure event.”
But that won’t be the case, FINRA said in a recent online update about regulatory relief tied to the coronavirus pandemic.
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“Because a PPP loan contemplates forgiveness of some or all of the loan …, such forgiveness will not involve a new agreement by the creditor, but will be an event consistent with the loan’s original terms,” it explained.
“In those circumstances, the forgiveness of a PPP loan will not be a ‘compromise with creditors’ for purposes of Form U4 Question 14K,” FINRA added. “Any forgiveness beyond the original terms of the loan would be considered a ‘compromise with creditors.’”
That was the input that Jeff Levine, lead financial planning nerd for Kitces.com and a colleague of Kitces at Buckingham Wealth Partners, wanted to hear.
“Good news for FINRA-regulated reps looking for #Paycheck Protection Program assistance!,” Levine said on Twitter late Monday. “Earlier today FINRA updated FAQs to address the open question of whether #PPP forgiveness would require disclosure on the U-4. As predicted, answer is ‘No.’ Good to have in writing though!”
In another matter related to PPP loans, FINRA stated that member firms including a covered loan as a liability on their balance sheets may add the forgivable expense amount back to net capital.