The Small Business Administration continues to fine-tune the Paycheck Protection Program (PPP) loan forgiveness process. Recently, the Small Business Administration (SBA) issued an Interim Final Rule (IFR) addressing the loan forgiveness requirements and review procedures for PPP loans. Here are the highlights:
- It is the lender that is tasked with conducting the review of a borrower’s completed PPP loan forgiveness application and accompanying required supporting documentation, including payroll data, and making a determination based on the forgiveness application and supporting documentation of the forgiveness amount. The lender must issue a decision to the SBA as to the loan forgiveness amount not later than 60 days after receipt of a complete loan forgiveness application package from the PPP borrower. That decision may take the form of an approval (in whole or in part); denial; or (if directed by the SBA) a denial without prejudice due to a pending SBA review of the loan for which forgiveness is sought.
- If forgiveness is denied without prejudice, the lender must notify the PPP borrower in writing that the lender has issued a decision to the SBA denying loan forgiveness and provide the SBA with a copy of the notice. The notice to the PPP borrower must include the reasons that the lender concluded that the PPP borrower is not entitled to loan forgiveness in any amount and inform the PPP borrower that the PPP borrower has 30 calendar days from receipt of the notification to seek, through the lender, review by the SBA of the lender’s decision. Within 30 days of notice from the lender, a PPP borrower may notify the lender that it is requesting that the SBA review and reconsider the lender’s decision, unless the SBA has determined that the borrower is ineligible for a PPP loan. Within 5 days of receipt, the lender must notify the SBA of the PPP borrower’s request for review.
- The SBA reserves the right, in its sole discretion, to review the lender’s decision as to loan forgiveness (whether approved in whole or part, or denied), and will notify the lender if the SBA decides to review the lender’s decision or if the SBA declines a request for review. If forgiveness is denied in whole or in part and if the PPP borrower does not timely request SBA review or the SBA declines the request for review, the lender is responsible for notifying the PPP borrower of the date on which the borrower’s first amortizing payment of the unforgiven portion of the PPP loan plus any accrued interest is due. If the SBA accepts a PPP borrower’s request for review, the SBA will notify the PPP borrower and the lender of the results of the review. If the SBA has, upon such review, denied forgiveness in whole or in part, the lender is responsible for notifying the PPP borrower of the date on which the borrower’s first amortizing payment of principal of the unforgiven portion of the PPP loan plus any accrued interest is due.
- The Forgiveness IFR adds that the SBA can, in its discretion, review a borrower’s first and second draw PPP loans at the same time or at different times, and also analyze whether a borrower was “eligible for a PPP loan based on the provisions of the CARES Act, the Economic Aid Act, the rules and guidance available at the time of the borrower’s PPP loan application, and the terms of the borrower’s loan application.” If the SBA, on review, determines the borrower to have been ineligible for a PPP loan, the PPP loan will not be eligible for forgiveness. The SBA may also seek immediate repayment of the outstanding PPP loan balance or pursue other remedies available to it. Importantly, the Forgiveness IFR notes that the CARES Act’s nonrecourse provisions limiting the SBA’s recourse against individual equity holders of the PPP borrower for nonpayment of the PPP loan applies “only if the borrower is an eligible recipient of the loan”.
More information about the SBA’s PPP loan program can be found here, including loan forgiveness applications and other helpful information.
If you have questions about the PPP loan forgiveness process or applying for a second PPP loan, please contact Johnson & Bell Shareholder, Mark D. Belongia.