
Lending & Finance Practice Group Leader
Client Alert
Steven S. Poindexter, Steven C. Drapekin
share this page:
Concurrently with SBA’s and Treasury’s issuance of the Interim Final Rule on Forgiveness (see our client alert here; for our full PPP coverage, click here), on May 22, 2020, SBA issued the Interim Final Rule on Loan Review Procedures, which supplements the Interim Final Rule on Forgiveness by providing information for borrowers and lenders regarding SBA’s process for reviewing PPP loan applications and loan forgiveness applications. When taken together with the PPP Loan Forgiveness Application and the Interim Final Rule on Forgiveness, the Interim Final Rule on Loan Review Procedures (discussed below) provides much needed guidance for PPP borrowers and lenders.
SBA may begin a review of a PPP loan of any size at any time. The Interim Final Rule on Loan Review Procedures identifies the following areas to be reviewed by SBA:
If SBA notifies a lender that it is reviewing a loan, the lender must:
Once SBA notifies the lender that SBA has commenced a loan review, the lender cannot approve any application for loan forgiveness for such loan until SBA notifies the lender in writing that SBA has completed its review.
As part of its review, SBA may contact borrowers directly or require lenders contact borrowers in writing to request additional information. The lender must provide SBA with any additional information provided to it by the borrower. SBA will consider all information provided by the borrower in response to SBA’s inquiry. A borrower’s failure to respond to SBA’s inquiry may result in SBA determining that the borrower was ineligible for a PPP loan or ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower.
If SBA determines a borrower was ineligible for a PPP loan, SBA will direct the lender to deny the borrower’s loan forgiveness application. If SBA determines the borrower was ineligible for the loan amount it received or is ineligible for the loan forgiveness amount it requested in its PPP Loan Forgiveness Application, SBA will direct the lender to deny the loan forgiveness application, in whole or in part, as appropriate. In either case, SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies.
A borrower may 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. The Interim Final Rule on Loan Review Procedures notes that SBA intends to issue a separate interim final rule addressing the appeal process.
Generally
Under the Interim Final Rule on Loan Review Procedures, each lender must confirm the following:
Scope of Review
While confirming it is the borrower’s responsibility to provide accurate calculations and that the lender may rely on the borrower’s representations, the Interim Final Rule on Loan Review Procedures requires lenders “to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness.” Lenders are authorized to conduct a more limited review where supporting payroll information is a payroll report by a recognized third-party payroll processor. The Interim Final Rule on Loan Review Procedures states a more extensive review of the borrower’s calculations and data would be appropriate where the relevant supporting documentation has not been prepared by such recognized third party payroll providers. SBA directs lenders that identify errors or a material lack of substantiation in the borrower’s supporting documents to work with the borrower to remedy the issue.
The Interim Final Rule on Loan Review Procedures confirms that the 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.
Forgiveness Timeline
A lender must issue to SBA a decision on a borrower’s PPP Loan Forgiveness Application no later than 60 days after the lender’s receipt from the borrower of a complete PPP Loan Forgiveness Application and required other documentation.
The lender’s decision on a borrower’s PPP Loan Forgiveness Application may be an approval (in whole or in part), a denial, or, if directed by SBA, a denial without prejudice due to a pending SBA review of the loan.
The Interim Final Rule on Loan Review Procedures also provides requirements and guidance for lender processing fees for PPP loans. This guidance includes the circumstances under which a lender will not be eligible for a processing fee and when the processing fee is subject to clawback.
The Interim Final Rule on Loan Review Procedures, together with the Interim Final Rule on Forgiveness, provides new detailed guidance and requirements for the forgiveness of PPP loans. We anticipate additional guidance will be issued relating to PPP loan forgiveness and the appeals process in the event a PPP loan forgiveness is denied. Lewis Rice will continue to monitor these developments and provide updates as needed.
Our attorneys are closely monitoring these developments as they occur and will make regular updates to our COVID-19 Resource Center. If you have any questions about the implications and disruptions of COVID-19 on your business, please reach out to one of the authors above or another member of the Task Force.