In the second of two Interim Final Rules issued by the Small Business Administration (SBA) on Friday, May 22, 2020 (read our alert covering the first rule here), the SBA addressed more about how Paycheck Protection Program (PPP) loan forgiveness will work. Entitled “SBA Loan Review Procedures and Related Borrower and Lender Responsibilities,” this guidance offers a little more detail about the rights and obligations of borrowers, lenders and the SBA with regard to the forgiveness application process. Below we highlight several of the important learnings from this new rule.
- The SBA has broad power to review any loan, regardless of size. The rule makes it clear that the SBA can review loans of any amount, at any time, as the SBA deems appropriate. While the SBA previously clarified that borrowers of loans under $2 million will avoid SBA scrutiny under the “economic necessity” certification in the PPP loan application, the SBA still can review borrower eligibility, loan amounts and use of proceeds and loan forgiveness amounts for loans at, above or below that size threshold. Such a review may occur if the loan documentation “or any other information” indicates that the borrower was ineligible for the loan, the exact loan amount or the forgiveness amount. If the SBA chooses to review a PPP loan, they must notify the lender in writing of such review. The lender must, within five days of such notification, provide written notice to the borrower that their loan is subject to SBA review.
- Borrowers should hang on to their PPP records. Borrowers are reminded to keep all PPP documentation for at least 6 years following forgiveness or repayment (as required by the Loan Forgiveness Application), in case their loan is reviewed.
- Borrowers have the ability to dispute their forgiveness determinations with the lender and SBA. Lenders have three options with regard to a forgiveness determination, which is required within 60 days of receipt of a complete forgiveness application: (1) approve the forgiveness amount, in whole or in part; (2) deny the forgiveness; or (3) deny the forgiveness without prejudice due to a pending SBA review. In the event of a denial, the SBA will require the lender to request additional information from the borrower, which it then must supply to the SBA for further consideration. In the event of approval, the SBA is required to remit payment to the lender within 90 days of the lender’s determination. In the event of partial or full denial, the borrower may, within 30 days of such denial, submit a request for SBA review. The SBA intends to issue a separate interim final rule addressing the borrower appeals process.
- Lenders must confirm borrower certifications, supporting documentation and calculations. Although borrowers are responsible for accurate loan forgiveness amount calculations, lenders are expected to undertake a good-faith review, in a reasonable amount of time, of borrowers’ calculations and supporting documentation. If there are calculation errors or a “material” lack of documentation, the lender must work with borrower to remedy the mistake.
- Lender processing fees are subject to clawback if a borrower is ineligible for the PPP loan. If the SBA determines that a borrower was not eligible for a PPP loan, the lender will not be eligible for the processing fee provided under the CARES Act. The SBA can make such a determination for up to one year after loan disbursement. If the lender was not eligible, the SBA can claw back the processing fee. But so long as the lender complies with SBA guidance including document retention, the SBA will not remove its guaranty of the loan. If the lender has not complied with the SBA guidance, the SBA may determine the loan is not eligible for guaranty.