At 10:00 p.m. CDT on Friday (May 22, 2020), the Small Business Administration (“SBA”), in coordination with the U.S. Treasury Department, issued two Interim Final Rules (“IFRs”) addressing forgiveness of Payroll Protection Program (“PPP”) loans. The first 26-page IFR primarily addresses the PPP Loan Forgiveness and the application for forgiveness (SBA Form 3508) (the “Application IFR”). You can find the text by clicking here. The second 19-page IFR addresses the review process for PPP Loan Applications and Loan Forgiveness Applications, along with related borrower and lender responsibilities (the “Review IFR”). You can find the text by clicking here.
Primarily, the Application IFR repeats the requirements and guidance in the instructions to Form 3508. For the most part, the Application IFR dispenses guidance by providing 15 questions and answers. While there are some subtle shifts and small expansions of guidance, the loan application process stays substantially intact.
The Review IFR brings new guidance. The Review IFR also provides most of its guidance through questions and answers – 12 in number.
The SBA first makes clear that it can review any PPP loan and the application therefor, regardless of size and for any reason it wishes or for no reason at all. The Review IFR tells the borrower to retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full. The SBA can review any time during that period. If the SBA raises questions about the loan, the SBA requires the lender to contact the borrower in writing to request additional information. Should the SBA determine the borrower is ineligible for the PPP loan or the loan amount or if the SBA disagrees with the amount of forgiveness, the borrower will have appeal rights to be set forth in a future IFR.
The Review IFR places a large part of the administrative burden of the application review process on the lender who made the loan, which is guaranteed by the SBA (unless the loan “fails” because of the lender not following the lending rules).
The Review IFR outlines a timeline for the loan forgiveness process:
- The program is currently scheduled to end June 30, 2020. Specifically, the SBA is authorized to guarantee loans under the PPP through June 30, 2020. This may mean that loans must be submitted before that date with sufficient time for a lender to process the loan and gets it loan guarantee from the SBA. (It is possible that the program may be extended by statute.)
- In most cases, it would appear that the completed Form 3508 and required documentation could not reasonably and completely be prepared and submitted to the lender before 56 days pass from the date that the borrower receives the loan proceeds. The earliest loans occurred on April 3, 2020.
- The lender then follows procedures outlined in and/or suggested by the Review IFR to decide on loan forgiveness. The lender has 60 days from the receipt of the completed application to decide on loan forgiveness.
- If the lender denies any amount of the forgiveness requested by the borrower, within 30 days of notice from the lender, the borrower may request that the SBA review the lender’s decision.
- Upon receipt of the completed forgiveness application package from the lender, the SBA has 90 days to review the loan forgiveness application and remit the loan forgiveness proceeds to the lender.
- The borrower may be asked questions by lenders and the SBA.
- If the SBA undertakes a review of a loan, it will notify the lender in writing and the lender must notify the borrower in writing within five business days of receipt.
- Within five business days of receipt of the notice of review from the SBA, the lender must transmit to the SBA electronically five different sets of documents, including some documents that it must request from the borrower and is not required to have in its files before such notice.
Needless to say, the application, review and forgiveness processes are cumulatively burdensome on all parties. No surprise there. This is a government program.
There will be changes in the PPP. As we stated in our last publication regarding the PPP on May 22, there are likely legislative changes to the PPP within the next couple of weeks. See our last missive on our website by clicking here.
If you have questions, please contact your HM&M advisor.
For more information check out HM&M’s COVID-19 Resources page.
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