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May 2020
May 29, 2020

Small Business Administration Issues Interim Final Rule Related to SBA’s PPP Loan Review Process and Lender Obligations

On Friday, May 22, 2020, the Small Business Administration (SBA) and Department of Treasury issued a Lender Interim Final Rule (Lender IFR) that explains the SBA’s process for reviewing PPP loans and provides direction on certain PPP lender responsibilities associated with loan forgiveness. The Lender IFR was issued in conjunction with a Borrower Interim Final Rule (Borrower IFR) outlining borrower obligations related to loan forgiveness. The Lender IFR provides the following:

SBA Review Process
  • The SBA may review any PPP loan to determine:
    • Borrower Eligibility.
    • Loan Amounts and Use of Proceeds.
    • Loan Forgiveness Amounts.
  • A borrower’s failure to respond to an SBA request for additional information may result in a determination that the borrower was ineligible for the loan or not entitled to receive the loan amount or forgiveness amount that was claimed.
  • If the SBA determines that a borrower is ineligible, none of the loan amount will be forgiven and the CARES Act protections limiting SBA recourse against individual shareholders, members and partners of a borrower for nonpayment of the loan will disappear.
  • Borrowers may have the ability to appeal certain SBA determinations that the borrower is ineligible for a PPP loan, the loan amount or the loan forgiveness amount. The SBA intends to issue additional guidance explaining this appeal process.

Loan Forgiveness Process for Lenders
  • For each PPP Loan Forgiveness Application, a lender must confirm:
    • Receipt of borrower certifications contained in the Loan Forgiveness Application Form.
    • Receipt of required documentation for verifying payroll and nonpayroll costs.
    • The borrower’s calculations on the Loan Forgiveness Application by reviewing the documentation submitted with the Loan Forgiveness Application.
  • Lenders are required to issue decisions to the SBA on borrower forgiveness applications within 60 days after receiving the application. The SBA then has 90 days to review the application and pay the forgiveness amount.
  • Lenders determining that a borrower is not entitled to forgiveness of any of the loan amount must provide the SBA with reasons for denial. Lenders must also notify borrowers in writing that the lender denied the borrower’s loan forgiveness application. Within 30 days after notice from the lender, the borrower may request that the SBA review the lender’s decision.
  • Lenders must notify a borrower in writing within five business days of receiving notice that the SBA is reviewing the borrower’s loan.
  • Within five business days of receiving notice that the SBA is reviewing a loan, lenders must electronically submit copies of the following to the SBA:
    • The Borrower Application Form and supporting documentation provided by the borrower.
    • The Loan Forgiveness Application and supporting documentation provided by the borrower.
    • A signed and certified transcript of account.
    • A copy of the executed note evidencing the PPP loan.
    • Any other documents related to the loan requested by SBA.
  • Lenders are not entitled to a processing fee for any PPP loan made to a borrower that the SBA deems ineligible.
  • Lenders are potentially subject to a one-year clawback for processing fees for PPP loans made to borrowers that the SBA deems ineligible. The one-year period starts on the date the loan was disbursed.
  • Lenders that fail to fulfill their obligations under PPP regulations are also subject to a clawback for processing fees and the SBA may also withdraw its guaranty on those loans

The rules surrounding PPP loans are complex and business specific. If you have concerns about the rules, please contact Ford Turrell, Timothy Hillegonds, Rob Davies, Matthew Crowe, Charlie Goode, Jeffrey Ott or your Warner attorney.

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