Late last week, the Small Business Administration (SBA) issued a procedural notice (Notice) to lenders announcing the SBA will begin accepting Paycheck Protection Program (PPP) loan forgiveness applications on Aug. 10. Lenders will be able to access the necessary platform, borrowers cannot. Borrowers must provide completed loan forgiveness applications to their respective lenders. Within the Notice, the SBA provides an outline of expectations for each lender.
Lenders are required to review the loan forgiveness application, make a forgiveness recommendation to the SBA, and submit the forgiveness application package and forgiveness determination to the SBA within 60 days of receiving a completed loan forgiveness application from the borrower. Borrowers should expect that all communication related to loan forgiveness applications to go through their respective lenders. The SBA will alert the lender in the event it undertakes a review of any loan and in turn, the lender shall notify the borrower within five business days.
It is vital for borrowers to submit complete, accurate, and well organized loan forgiveness applications to ensure a timely response. If not, questions and delays may arise that result in unnecessary scrutiny by a lender or the SBA. In accordance with previously issued PPP guidance, the SBA reiterated that it is the responsibility of the borrower to provide an “accurate calculation of the loan forgiveness amount … and lenders may rely on borrower representations.” The SBA also emphasized it has the discretion to review any PPP loan, of any size, at any time, at its discretion.
Forgiveness Process Summary
PPP borrowers should anticipate the following to occur within 150 days after submitting a complete loan forgiveness application:
- Borrower will submit the loan forgiveness application (SBA Form 3508, 3508EZ, or lender equivalent) to its lender;
- Lender will confirm receipt of borrower’s certifications and all documentation submitted to aid in verifying payroll and eligible non-payroll costs;
- Lender will confirm borrower’s loan forgiveness calculations and verify eligible expenses by reviewing the supporting documentation;
- If an omission or error is identified by lender regarding borrower’s calculations, or lack of supporting documents, the lender must work with the borrower to remedy the matter. A borrower will not receive forgiveness without providing acceptable supporting documentation;
- Lender must complete its review of the application and issue a loan forgiveness decision to the SBA, along with the required documents, no later than 60 days after receipt of a complete application. Lenders have the following choices when issuing a loan forgiveness decision:
- Approval in whole
- Approval in part
- Denial with prejudice pending SBA review of the loan
- The lender will then issue its decision to the SBA and, if the decision was an approval, lender will request payment of the loan from the SBA concurrently;
- Once the lender submits the loan forgiveness package to the SBA, it has 90 days to conduct its own review of the loan or loan application and remit the appropriate loan forgiveness amount to the lender, plus any interest accrued through the date of its purchase of the loan, if the loan is deemed eligible for loan forgiveness in whole or in part. Borrowers should note that the SBA will deduct Economic Injury Disaster Loans (EIDL) advance amounts from the loan forgiveness amount remitted to the lender; and
- Once the SBA’s decision and funds are remitted to the lender, it is the lender’s responsibility to notify the borrower. In the event the forgiveness amount paid by the SBA to the lender is less than the amount in the loan forgiveness decision issued by the lender to the SBA, the lender must also notify the borrower of the adjusted amount. Borrowers should note that any remaining balance due on the loan must be repaid by the borrower.
If a lender denies a borrower’s loan forgiveness application in full, the lender must still provide its decision to the SBA along with the loan forgiveness application package and its rationale for denying loan forgiveness. A borrower may appeal a loan forgiveness determination by the SBA, and there will be more information to come regarding that process in the weeks ahead.
For further information, please contact any member of Taft’s SBA Task Force.
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