SBA Issues Interim Final Rule on PPP Loan Review Procedures
On May 22, 2020, the Small Business Administration (SBA) released an interim final rule providing guidance to borrowers and lenders with respect to the SBA’s process for reviewing PPP loan applications and loan forgiveness applications. With PPP loans first disbursed around April 3, 2020, the eight-week post-loan disbursement period for early PPP borrowers will start ending in the coming weeks, allowing them to apply for loan forgiveness through their lenders. Because PPP lenders will generally determine loan forgiveness eligibility, such lenders will need to develop procedures for processing loan forgiveness applications.
The interim final rule does not provide additional guidance on the substantive factors that the SBA will consider when reviewing a borrowers loan forgiveness application. Instead, the intern final rule provides detail on a number of procedural issues related to SBA loan forgiveness review. Below is a summary of key points for both PPP borrowers and lenders with respect to the SBA’s PPP loan review procedures.
- Any PPP loan is subject to review by the SBA, including review of the borrower’s eligibility, the loan amounts and use of loan proceeds, and the loan forgiveness amounts
- Borrowers must retain PPP loan documentation for 6 years after the date the loan is forgiven or repaid, and must provide the SBA access to those files upon request
- The SBA will generally contact borrowers through their lenders if there is an indication that a borrower may be ineligible for the loan amount or for loan forgiveness
- Loan forgiveness eligibility is dependent upon initial loan eligibility, e. if the SBA determines that a borrower is ineligible for a PPP loan, then the SBA will direct the borrower’s lender to deny the loan forgiveness application
- Borrowers cannot receive forgiveness without submitting all required documentation to their lenders
- Borrowers may request that the SBA review a lender’s denial of any aspect of a loan forgiveness application within 30 days of notice from the lender of such decision
- Eligibility determinations by the SBA are appealable, the process for which will be the subject of a separate interim final rule
- Lenders must comply with applicable SBA requirements for records retention (typically the requirements of their federal regulator)
- Lenders must review the following for all PPP loan forgiveness applications:
- Confirm receipt of borrower certifications contained in the loan forgiveness application
- Confirm receipt of documentation from borrower supporting payroll and nonpayroll costs
- Confirm all of borrower’s calculations on the loan forgiveness application and loan forgiveness calculation form based upon the documents submitted by borrower
- Lenders must perform a good-faith review of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness
- E.g., Minimal review is considered reasonable with respect to calculations based upon payroll documentation produced by a recognized third-party payroll processor; more extensive review of calculations is needed where payroll documentation does not come from such recognized sources
- Lenders should work with borrowers to remedy calculation errors insufficient supporting documentation
- Lenders may rely on a borrower’s representations and need not independently verify the borrower’s reported information if supported by appropriate documentation
- Lenders must issue a decision to the SBA on a loan forgiveness application within 60 days after receipt of a complete loan forgiveness application from a borrower
- When a lender determines that a borrower is entitled to forgiveness of some or all of the loan amount applied for, the lender must request payment from the SBA at the time of issuing the lender’s decision to the SBA, and subject to review, the SBA will remit the appropriate forgiveness amount plus any accrued interest to the lender within 90 days
- Lenders must notify borrowers in writing of any decision denying a loan forgiveness application whether in whole or in part
- Upon notice from the SBA of a PPP loan review, within 5 business days, a lender must notify the borrower in writing of such review and must also transmit to the SBA electronic copies of certain PPP loan and loan forgiveness documentation
Specific Guidance on Lender Fees
- A lender is not eligible for a processing fee if the SBA conducts a loan review and determines that a borrower was ineligible for a PPP loan
- For any SBA-reviewed PPP loan, a 1-year clawback period applies to lender processing fees from the time of loan disbursement and must be repaid if the SBA determines during such period that a borrower was ineligible for a PPP loan
- However, the SBA’s determination of borrower eligibility will have no effect on the SBA’s guaranty of the loan if the lender has complied with its obligations under section III.3.b of the First Interim Final Rule (e., loan underwriting requirements) and the document collection and retention requirements described in SBA Form 2484 (lender application form)
- Failure by a lender with respect to these obligations will result in the SBA seeking repayment of the lender processing fee from the lender and the SBA may determine that the loan is not eligible for a guaranty
The KMK Law Coronavirus (COVID-19) Response Team can assist borrowers and lenders with their PPP loan compliance and forgiveness issues.
Joseph E. Lehnert
Brian P. Muething
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