The CARES Act was enacted on March 27th, 2020 to provide immediate assistance to individuals, families, and organizations affected by the COVID-19 emergency.

Among the provisions contained in the CARES Act are provisions authorizing SBA to temporarily guarantee loans under the Paycheck Protection Program (PPP).  The intent was to quickly provide funding to struggling business owners impacted by the government mandated public health measures designed to mitigate the spread of the virus.  In service of that goal, the structure of the program relies on borrower documentation and certifications to apply for loans and forgiveness.

The central purpose of the program, per the CARES Act, is keeping workers paid and employed.  This Interim Final Rule (IFR) indicates that the SBA has determined it is appropriate to adopt additional procedures and criteria through which SBA will review whether an action by the borrower has resulted in its receipt of a PPP loan that did not meet program requirements.

The IFR is released in a Q&A Format.  We have pasted a somewhat condensed version of the information below.  The full IFR can be found HERE.

This IFR is likely to consume lender compliance groups upon return from their Memorial Day weekend.  The document is broken down into three separate Q&A categories – SBA Reviews of Individual Loans, The Loan Forgiveness Process for Lenders, and Lender Fees.

SBA Reviews of Individual Loans

  1. Will SBA review individual PPP loans?
    1. Yes. SBA may review any PPP loan, as the Administrator deems appropriate.
  2. What borrower representations and statements will SBA review?
    1. Borrower Eligibility
    2. Loan Amounts and Use of Proceeds – The Administrator may review whether a borrower calculated the loan amount correctly and used loan proceeds for the allowable uses specified in the CARES Act.
    3. Loan Forgiveness Amounts
  3. When will SBA undertake a loan review?
    1. For a PPP loan of any size, SBA may undertake a review at any time in SBA’s discretion.  For example, SBA may review a loan if the loan documentation submitted to SBA by the lender or any other information indicates that the borrower may be ineligible for a PPP loan, or may be ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower. As noted on the Loan Forgiveness Application Form, 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.
    2. Lenders must comply with applicable SBA requirements for records retention, which for Federally regulated lenders means compliance with the requirements of their federal financial institution regulator and for SBA supervised lenders means compliance with 13 CFR 120.461.
  4. Will I have the opportunity to respond to SBA’s questions in a review?
    1. Yes. If loan documentation submitted to SBA by the lender or any other information indicates that the borrower may be ineligible for a PPP loan or may be ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower, SBA will
      require the lender to contact the borrower in writing to request additional information.  SBA may also request information directly from the borrower.
    2. Failure to respond to SBA’s inquiry may result in a determination that the borrower was ineligible for a PPP loan or ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower.
  5. If SBA determines that a borrower is ineligible for a PPP loan, can the loan be forgiven?
    1. No. If SBA determines that a borrower is ineligible for the PPP loan, SBA will direct the lender to deny the loan forgiveness application. Further, if SBA determines that the borrower is ineligible for the loan amount or loan forgiveness amount claimed by the borrower, SBA will direct the lender to deny the loan forgiveness application in whole or in part, as appropriate.
    2. SBA may also seek repayment of the outstanding PPP loan
      balance or pursue other available remedies.
    3. The borrower must be an “eligible recipient” under the rules and guidance available at the time of the borrower’s loan application.
  6. May a borrower appeal SBA’s determination that the borrower is ineligible for a PPP loan or ineligible for the loan amount or the loan forgiveness amount claimed by the borrower?
    1. Yes. SBA intends to issue a separate IFR addressing this process.

The Loan Forgiveness Process for Lenders

  1. What should a Lender review?
    1. For all PPP Loan Forgiveness Applications, each lender shall:
      1. Confirm receipt of the borrower certifications contained in the Loan Forgiveness Application Form,
      2. Confirm receipt of the documentation borrowers must submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the Loan Forgiveness Application Form,
      3. Confirm the borrower’s calculations on the borrower’s Loan Forgiveness Application, including the dollar amount of:
        1. Cash Compensation, NonCash Compensation, and Compensation to Owners claimed on Lines 1, 4, 6, 7, 8, and 9 on PPP Schedule A; and
        2. 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.
      4. 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.
    2. Providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower, and the borrower attests to the accuracy of its reported information and calculations on the Loan Forgiveness Application.
    3. Lenders are 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.
    4. Minimal review of calculations based on a payroll report by a recognized third-party payroll processor would be reasonable, more extensive review would be required for payroll costs not documented with such recognized sources.
    5. 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.
    6. Lender does not need to independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.
  2. What is the timeline for the lender’s decision on a loan forgiveness application?
    1. The lender must issue a decision to SBA on a loan forgiveness application not later than 60 days after receipt of a complete loan forgiveness application from the borrower.
    2. That decision may take the form of an approval (in whole or in part); denial; or (if directed by SBA) a denial without prejudice due to a pending SBA review of the loan for which forgiveness is sought.
    3. In the case of a denial without prejudice, the borrower may
      subsequently request that the lender reconsider its application for loan forgiveness, unless SBA has determined that the borrower is ineligible for a PPP loan.
    4. When the lender issues its decision to SBA approving the application (in whole or inpart), it must include:
      1.  PPP Loan Forgiveness Calculation Form;
      2.  PPP Schedule A; and
      3.  PPP Borrower Demographic Information Form (if submitted to lender – form is optional).
    5. If the lender determines that the borrower is entitled to forgiveness of some or all of the amount applied for under the
      statute and applicable regulations, the lender must request payment from SBA at the time the lender issues its decision to SBA.
    6. SBA will, subject to any SBA review of the loan or loan application, remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, not later than 90 days after the lender issues its decision to SBA.
    7. If applicable, SBA will deduct EIDL Advance Amounts from the
      forgiveness amount remitted to the Lender as required by section 1110(e)(6) of the CARES Act.
    8. When the lender issues its decision to SBA determining that the borrower is not entitled to forgiveness in any amount, the lender must do the following:
      1. Provide SBA with the reason for its denial,
      2. Confirm that the information provided by the lender to SBA accurately reflects lender’s records for the loan, and that the lender has made its decision in accordance with the requirements, and
      3. Notify the borrower in writing that the lender has issued a decision to SBA denying the loan forgiveness application.
    9. Within 30 days of notice from the lender, a borrower may request that SBA review the lender’s decision.
  3. What should a lender do if it receives notice that SBA is reviewing a loan?
    1. If SBA undertakes such a review, SBA will notify the lender in writing and the lender must notify the borrower in writing within five business days of receipt.
    2. Within five business days of receipt of such notice, the lender shall transmit to SBA electronic copies of the following:
      1. The Borrower Application Form and all supporting documentation provided by the borrower.
      2. The Loan Forgiveness Application and all supporting documentation provided by the borrower.
      3. A signed and certified transcript of account.
      4. A copy of the executed note evidencing the PPP loan.
      5. Any other documents related to the loan requested by SBA.
    3. If SBA has notified the lender that SBA has commenced a loan review, the lender shall not approve any application for loan forgiveness for such loan until SBA notifies the lender in writing that SBA has completed its review.

Lender Fees

  1. Is the lender eligible for a processing fee if SBA determines that a borrower is ineligible?
    1. No. If SBA conducts a loan review and determines that the borrower was ineligible for a PPP loan, the lender is not eligible for a processing fee.
  2. Are lender processing fees subject to clawback if SBA determines that a borrower is ineligible?
    1. Yes. For any SBA-reviewed PPP loan, if within one year after the loan was disbursed SBA determines that a borrower was ineligible for a PPP loan.  However, SBA’s determination of borrower eligibility will have no effect on SBA’s guaranty of the loan if the lender has complied with its obligations under section III.3.b of the First IFR and the document collection and retention requirements described in the lender application form (SBA Form 2484).
  3. Are lender processing fees subject to clawback if a lender has not fulfilled its obligations under PPP regulations?
    1. Yes. If a lender fails to satisfy the requirements applicable to lenders that are set forth in section III.3.b of the First IFR or the document collection and retention requirements described in the lender application form (SBA Form 2484), SBA will seek repayment of the lender processing fee from the lender and may determine that the loan is not eligible for a guaranty.

Please reach out to cares@brinkersimpson.com with questions.

We are in this together,

Brinker Simpson & Company, LLC

Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice & cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).