The Small Business Administration updated their Paycheck Protection Program and Forgiveness related FAQ documents on August 11, 2020. They also published an interim final rule (IFR) related to the appeal certain SBA loan review decisions. We are reviewing the new IFR and will provide an overview of the content soon.
The forgiveness FAQ responses provide long clarity regarding the impact on forgiveness of Economic Injury Disaster Loan (EIDL) grant advances.
Per the updated FAQ, lenders will be able to confirm the amount of a borrower’s EIDL advance on the SBA Forgiveness platform and the SBA will automatically deduct the amount from the forgiveness amount submitted by the borrower. This scenario has the potential to cause confusion for borrowers who are expecting to see their loans fully forgiven and for lenders when reconciling PPP balances and forgiveness amounts with the SBA.
Borrowers should be advised about the amount they will potentially owe with their applications for forgiveness due to receiving an EIDL grant, especially borrowers expecting 100% forgiveness of their PPP loans.
The five new questions and responses are pasted below and can also be found at the following links:
8-11-2020 – Updated PPP Forgiveness FAQ
Question: What effect does the payment or nonpayment of fees of an agent or other third party have on SBA’s guarantee of a PPP loan or SBA’s payment of fees to lenders?
Answer: The payment or nonpayment of fees of an agent or other third party is not
material to SBA’s guarantee of a PPP loan or to SBA’s payment of fees to lenders.
Additional information about such fees can be found in paragraph III.4.c of the initial Paycheck Protection Program interim final rule (link).
51. Question: Do payments required for the provision of group health care benefits,
including insurance premiums, include vision and dental benefits?
Answer: Yes.
Economic Injury Disaster Loan (EIDL) FAQs
Question: SBA will deduct the amount of any Economic Injury Disaster Loan (EIDL) advance received by a PPP borrower from the forgiveness amount remitted to the lender. How will a lender know the amount of the EIDL advance that will be automatically deducted by SBA?
Answer: If a borrower received an EIDL advance, SBA is required to reduce the
borrower’s loan forgiveness amount by the amount of the EIDL advance. SBA will
deduct the amount of the EIDL advance from the forgiveness amount remitted by SBA to the lender. The lender will be able to confirm the amount of the EIDL advance that will be automatically deducted by SBA from the forgiveness payment by reviewing the borrower’s EIDL advance information in the PPP Forgiveness Platform.
Question: How should a lender handle any remaining balance due on a PPP loan after SBA remits the forgiveness amount to the lender?
Answer: If a PPP loan is not forgiven in full (including if there has been a reduction in the forgiveness amount for an EIDL advance), any remaining balance due on the PPP loan must be repaid by the borrower. The lender is responsible for notifying the borrower of the loan forgiveness amount remitted by SBA and the date on which the borrower’s first loan payment is due. The lender must continue to service the loan. The borrower must repay the remaining loan balance by the maturity date of the PPP loan (either two or five years). If a borrower is determined to have been ineligible for a PPP loan for any reason, SBA may seek repayment of the outstanding PPP loan balance or pursue other available remedies.
Question: What should a lender do if a borrower received an EIDL advance in excess of the amount of its PPP loan?
Answer: A borrower that received an EIDL advance in excess of the amount of its PPP loan will not receive any forgiveness on the PPP loan, because the amount of an EIDL advance is deducted from the PPP loan forgiveness amount. The lender is responsible for notifying the borrower of the date on which the borrower’s first loan payment is due. The lender must continue to service the loan. The borrower must repay the remaining loan balance by the maturity date of the PPP loan (either two or five years). If a borrower is determined to have been ineligible for a PPP loan for any reason, SBA may seek repayment of the outstanding PPP loan balance or pursue other available remedies.
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).