PPP: SBA Issues Guidance on Forgiveness Responsibilities for Lenders and Borrowers

By Jeff Skaggs May 27, 2020

The SBA recently issued an interim final rule (IFR), which is effective immediately. The IFR provides clarity on some aspects of the forgiveness process and related borrower and lender responsibilities. The SBA issued the IFR “to meet lenders’ and borrowers’ need for clarity concerning loan forgiveness requirements as rapidly as possible…”.

It includes questions and answers that touch on the following primary points:

1. The SBA may review ANY loan of any size in its discretion.
2. Borrowers must retain PPP documentation supporting their loan application and loan forgiveness calculation for six years after the date of forgiveness or repayment.
3. For each loan forgiveness application, lenders shall:
   • Confirm receipt of the borrower certifications contained in the Loan Forgiveness Application Form.
   • Confirm receipt of the documentation borrowers must submit to aid in verifying payroll and nonpayroll costs.
   • Confirm the borrower’s calculations on the borrower’s Loan Forgiveness Application, including the dollar amount of the (A) Cash Compensation, Non-Cash Compensation, and Compensation to Owners claimed on Lines 1, 4, 6, 7, 8, and 9 on PPP Schedule A and (B) Business Mortgage Interest Payments, Business Rent or Lease Payments, and Business Utility Payments claimed on Lines 2, 3, and 4 on the PPP Loan Forgiveness Calculation Form, by reviewing the documentation submitted with the Loan Forgiveness Application.
   • Confirm that the borrower made the calculation on Line 10 of the Loan Forgiveness Calculation Form correctly, by dividing the borrower’s Eligible Payroll Costs claimed on Line 1 by 0.75.
   • Perform a good-faith review of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness. For example, minimal review of calculations based on a payroll report by a recognized third-party payroll processor would be reasonable. By contrast, if payroll costs are not documented with such recognized sources, more extensive review of calculations and data would be appropriate. The borrower shall not receive forgiveness without submitting all required documentation to the lender.
   • Rely on borrower representations. If the lender identifies errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documents, the lender should work with the borrower to remedy the issue.
4. Lenders must issue a decision to SBA on a loan forgiveness application no later than 60 days after receipt of a complete loan forgiveness application from the borrower.
5. The SBA must remit the forgiveness amount to the lender within 90 days after the lender issues its decision to the SBA.

In addition, the IFR discusses the notification requirements for when a lender determines that a borrower has not met the requirements for full or partial loan forgiveness.

The full IFR can be found here.

In addition to the above IFR, the SBA concurrently released another IFR which is intended to help PPP borrowers prepare and submit loan forgiveness applications and addresses a number of questions stakeholders have raised in terms of how loan forgiveness is calculated. We will provide a discussion of the guidance contained within the IFR shortly, to supplement the thoughts shared in our earlier article addressing the forgiveness application form. In the meantime, this additional full IFR can be found here.

We will keep you posted as further information becomes available. As always, please do not hesitate to contact us with any questions you have related to the CARES Act, related legislation, or anything else caused by these uncertain events. We are here to help.

For more information or a discussion on how this may impact you, please contact Jeff Skaggs or your BNN advisor at 800.244.7444.