On May 22, 2020, the U.S. Department of the Treasury (the Treasury) and the Small Business Administration (SBA) issued a new Interim Final Rule (IFR 15) related to the SBA’s loan forgiveness review process and the Paycheck Protection Program (PPP). A summary of the updated guidance is provided below.
IFR 15 provides lenders and borrowers with insight on the process and timeline that the SBA will work with for PPP loan forgiveness.
Once a lender receives a Loan Forgiveness Application from a borrower, the lender is “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.” As part of the good-faith review, a lender is to confirm:
- Receipt of the certifications made by the borrower on the Loan Forgiveness Application
- Receipt of documentation in verifying payroll and nonpayroll costs
- Specific amounts on the forgiveness application are accurate through review of supporting documentation
- Accuracy of Line 10 of the Loan Forgiveness Calculation Form through recalculation by dividing claimed eligible payroll costs by 0.75
A lender’s decision on the loan forgiveness application must be submitted to the SBA within 60 days after receipt of a completed loan forgiveness application. A completed loan forgiveness application should include all supporting documentation and required borrower information. If there is significant back and forth between the lender and borrower in gathering supporting documentation, the beginning of the 60-day review period may be delayed. The forgiveness application decision may take the form of either an approval (in whole or in part), denial or denial without prejudice (indicating a pending SBA review). When the lender issues its forgiveness decision to the SBA, the accompanying submission to the SBA must include:
- Loan Forgiveness Calculation Form
- Schedule A of the Loan Forgiveness Application
- Borrower Demographic Information Form (if submitted to the lender, but optional for the borrower to provide)
- Reason for denial (if applicable because the borrower did not receive forgiveness in any amount)
In addition, “the lender must confirm that the information provided by the lender to the SBA accurately reflects lender’s records for the loan, and that the lender has made its decision in accordance with the requirements in 2.a” of IFR 15 (and listed above).
An approval of forgiveness, in whole or in part, by a lender results in the lender requesting payment from the SBA concurrently with the issuance of the forgiveness decision. A complete denial of forgiveness must be communicated to the borrower in writing. Within 30 days of the notice of denial of loan forgiveness from the lender, the borrower may request that the SBA review the lender’s decision.
The SBA previously stated in Frequently Asked Question (FAQ) #39 that it will review all loans with an original principal balance in excess of $2 million, in addition to other loans as deemed appropriate. IFR 15 discusses the elements the borrower should expect as part of the loan review process.
Once a loan forgiveness decision and supporting documentation is submitted by the lender to the SBA, the SBA has 90 days to review the loan, if they choose to, and provide payment to the lender for the determined amount of loan forgiveness, including any related interest accrued. IFR 15 reiterates the language in FAQ #39 stating that the “SBA may review any PPP loan, as the Administrator deems appropriate.”
As part of the SBA’s review, the SBA is authorized to review borrower eligibility, the calculated loan amount and use of the loan proceeds, and the loan forgiveness amounts based on the Loan Forgiveness Application. The guidance also states that the SBA may undertake a loan review “for a PPP loan of any size” and “at any time in the SBA’s discretion.” The guidance goes on to remind borrowers that the “the borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.” Lenders must also comply with record retention requirements, which for federally regulated lenders are dictated by its federal financial institution regulator and by the SBA in other instances.
If the SBA selects a loan for review, it will notify the lender in writing, who must notify the borrower in writing within five business days of the receipt of notice that the borrower’s loan is being reviewed. In addition, within those 5 days, the lender must submit electronic copies of the following to the SBA:
- Borrower Application Form and supporting documentation
- Loan Forgiveness Application and supporting documentation, including the Schedule A Worksheet to the Loan Forgiveness application
- Signed/Certified transcript of account
- Copy of executed PPP loan note
- Any other documents related to the loan
The borrower will have an opportunity to respond to the SBA’s questions during a loan review. If the SBA has questions about borrower eligibility, the loan amount, or the claimed forgiveness amount, the SBA will require the lender to contact the borrower in writing to request additional information. If the borrower fails to respond to the SBA’s inquiries, it may result in the SBA determining ineligibility for the loan or the forgiveness amount.
If the SBA determines that a borrower is ineligible for the PPP loan, the forgiveness application will be denied, and the borrower will be required to repay the loan. The SBA may also “pursue other available remedies.” Borrowers can appeal the SBA’s decision of ineligibility, forgiveness amount or ineligibility for the loan amount; as such, the SBA intends to issue another Interim Final Rule addressing the appeals process.
IFR 15 also discusses Lender Fees, noting that lenders are not eligible to receive processing fees on loans that were deemed to be made to an ineligible borrower. Lender fees are also subject to clawback if within one year after the loan was disbursed the SBA deems the borrower to be ineligible for the PPP loan based on the provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the terms of the loan application or other applicable guidance available at the time the borrower submitted its loan application. Lender fees are also subject to clawback if the lender does not fulfill its obligations under the PPP regulations. These obligations include adherence to the record retention requirements and satisfying the requirements applicable to lenders in Section III.b.3 in the first Interim Final Rule.
In addition to IFR 15, on May 22, 2020, the Treasury and the SBA issued an additional Interim Final Rule on Loan Forgiveness (IFR 14). For a summary of IFR 14, click here.
For more information, reach out to us at CARESActQuestions@dhg.com.
 Interim Final Rule for SBA Loan Review Procedures and Related Borrower and Lender Responsibilities.