May 26 New PPP Update: SBA Releases Interim Final Rule on Loan Review Procedures & Borrower and Lender Responsibilities
Prior to the long Memorial Day Weekend, the Small Business Administration (SBA) released two Interim Final Rules on May 22, 2020 surrounding the Paycheck Protection Program (PPP). The first of the two Interim Final Rules provides guidance for borrowers and lenders on loan forgiveness, including information on payroll and non-payroll costs, FTE and salary reductions and policies & procedures. Refer to our recent eblast here for additional information.
The second of the two Interim Final Rules, a copy of which can be found here, details the procedures the SBA will undertake to review selected loans, as well as how borrowers and lenders will be impacted. The good-faith certification process has been front and center on the minds of borrowers and lenders alike. To recap, borrowers were required to make a good-faith certification that “the uncertainty of the economic conditions makes necessary the loan request to support ongoing operations”. Further clarified by a number of SBA FAQs, borrowers were informed that:
- The SBA would review all loans with principal amounts in excess of $2M (Loans below this $2M threshold could be reviewed as well);
- Borrowers had the option to return funds by May 18, 2020 to avoid certification issues;
- If the SBA determines that the borrower lacked adequate basis for this required certification, the SBA will seek repayment and the loan would not be eligible for forgiveness
In addition to the good-faith certification referenced above, borrowers were also required to certify that:
- Funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments;
- There is not an application pending for a PPP loan for the same purpose and duplicative of amounts applied for or received under a covered loan; and
- During the period from February 15, 2020 – December 31, 2020, the borrower has not received amounts under this subsection for the same purposes and duplicative of amounts applied for or received under a covered loan.
As referenced above, the SBA’s May 22, 2020 Interim Final Rule release provides guidance surrounding the loan review and certification process. Areas covered by this recent guidance include:
- Borrower Representations and Statements: The SBA may review borrower CARES Act eligibility based upon the time the application was submitted. Areas referenced in the guidance include overall enterprise eligibility and affiliations, as well as certifications and representations made on the loan application form and the loan forgiveness application form. Appropriate use of loan proceeds, loan amount calculations and overall forgiveness eligibility fall within the SBA review guidelines as well.
- SBA Review Timing: SBA may undertake a review at any time at the SBA’s discretion. As stipulated on the loan forgiveness application form, borrowers are required to maintain documentation for 6 years following the date of forgiveness or full loan repayment. Lenders must follow SBA record retention requirements as well.
- Borrower Responses: Borrowers will be given the opportunity to respond to SBA questions and inquiries surrounding the loan process review. Responses may be directed toward the lender and/or directly towards the SBA depending upon the inquiry.
- Appeal Rights: If the SBA determines that the borrower is ineligible for the PPP loan or is ineligible for PPP loan forgiveness, the borrower will be offered an appeal opportunity. The SBA will issue a separate Interim Final Rule on the appeals process.
In addition to processes that the SBA will undertake to review PPP loan and forgiveness eligibility, this Interim Final Rule also provides guidance for lenders. While the accuracy of the calculation ultimately falls on the borrower, lenders are expected to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness.
Lenders are not required to independently verify the borrower’s reported information – they may rely upon borrower certifications. However, lenders are required to confirm:
- Receipt of borrower certifications;
- Receipt of documentation supporting payroll costs and non-payroll costs; and
- Calculations on the loan forgiveness application.
Borrowers will not receive forgiveness without submitting all required documentation to the lender. Furthermore, lenders and borrowers should work together to identify and resolve any issues.
Lenders must issue a decision to the SBA on loan forgiveness no later than 60 days after receipt of the loan forgiveness application from the buyer. The decision may include:
- Approval of loan forgiveness (in whole or in part);
- Denial of loan forgiveness; or
- Denial without prejudice pending SBA review of the loan
In situations where the PPP forgiveness is denied without prejudice, the borrower may request lender reconsideration of the application for forgiveness, unless the SBA has already determined that the borrower is ineligible. If the lender determines that the borrower’s loan is forgiveness-eligible, the lender must request payment from the SBA at the time the lender issues its decision to the SBA. The SBA, subject to any review of the loan application and/or the loan forgiveness application, will remit the appropriate forgiveness amount to the lender within 90 days. If applicable, the SBA will deduct EIDL advances from the forgiveness amount at that time.
Guidance for situations in which lenders receive notification of SBA review (including documents required as part of the review process), as well as the impact on lender fees in situations in which loan amounts and/or forgiveness are impacted, are detailed in this Interim Final Rule release as well.
Tune into our webinar on Thursday, May 28h at 10AM for additional information on this topic. View the invite and register here.
Sax will continue to update you as further details are made available. Reach out to your Sax advisor or email [email protected] with questions. For more and on-going information relative to your state and business, visit Sax’s COVID-19 Resource Center.