SBA Interim Final Rule Frames Obligations of PPP Borrowers and Lenders | Fox Rothschild LLP
On May 22, 2020, a new provisional final rule was published by the Small Business Administration (SBA) which provides advice to borrowers and lenders regarding the SBA review process under the Paycheck Protection Program (PPP). The review includes both the loan cancellation calculation and eligibility. For example, the SBA may verify that the borrower’s business is of an eligible type under the SBA rules and verify that the SBA’s membership rules have been applied correctly.
Beyond denial of remission, the rule does not specifically state what other potential enforcement actions could be taken against ineligible borrowers. While the promise of secured audits for original loans of $ 2 million or more remains, the SBA can still review all loans, regardless of size.
The new rule states that:
- The SBA review consists of determining if the borrower is eligible for the PPP loan; whether the information, certifications and statements on both the borrower’s application and the loan forgiveness application are correct; and whether the borrower qualifies for a loan forgiveness.
- If the SBA determines that the borrower is not eligible for the loan amount or the loan forgiveness amount claimed by the borrower, the SBA will order the lender to deny the loan forgiveness request, in whole or in part. The SBA may also seek repayment of the outstanding balance of the PPP loan or pursue other unidentified remedies.
- The non-recourse provisions only apply if the borrower is an eligible beneficiary of the loan. If the borrower is eligible for the loan, there is no personal liability. However, the SBA can sue individual shareholders, members or partners of a PPP borrower for non-payment of a PPP loan if the borrower is not an eligible beneficiary of the loan.
- The borrower is responsible in the first place to provide an accurate calculation of the loan forgiveness amount. The borrower must certify the accuracy of the information declared and the calculation of the cancellation of the loan.
- Lenders are required to perform a good faith review, within a reasonable time, of the borrower’s calculation and supporting documentation regarding amounts eligible for loan forgiveness. For example, the Interim Final Rule explains that a minimal review of calculations based on a payroll report by a recognized third-party payroll processor would be reasonable. On the other hand, if labor costs are not documented with such recognized sources, a closer examination of the calculations and data would be appropriate.
- The borrower cannot receive the rebate without submitting all the required documents to the lender.
- If the lender identifies errors in the borrower’s calculations or a significant lack of justification in the borrower’s supporting documents, the lender is encouraged to work with the borrower to remedy the problem.
- Lender must issue loan forgiveness decision to SBA no later than 60 days following receipt of a complete loan forgiveness request from the borrower. This decision may take the form of an approval (in whole or in part); denial; or (if ordered by the SBA) denial without prejudice due to a pending SBA review of the loan for which forgiveness is requested. If denied without prejudice, the borrower can then ask the lender to reconsider their loan cancellation request, unless the SBA has determined that the borrower is not eligible for a PPP loan.
- If the Lender determines that the Borrower is entitled to a rebate of all or part of the amount requested, the SBA, subject to any SBA review of the loan or loan request, will remit the appropriate amount of rebate to the Lender, plus accrued interest. until the payment date, at the latest 90 days after the lender has made its decision to the SBA. If applicable, the SBA will deduct the amount of the Economic Disaster Loan (EIDL) advance from the remission amount.
- When the lender makes its decision to the SBA that the borrower is not entitled to a discount of any amount, the lender must provide the SBA with the reason for its denial. The lender must also notify the borrower in writing that the lender has made a decision to the SBA denying the loan forgiveness request. Within 30 days of the lender’s notice, a borrower can ask the SBA to review the lender’s decision. At a later date, the SBA will define an appeal process.
- If the SBA undertakes a review, the SBA will notify the lender in writing and the lender must notify the borrower in writing within five business days of receiving notification from the SBA. If the SBA notifies a lender that the SBA has started a loan review, the lender cannot approve any loan forgiveness request for such loan until the SBA notifies the lender in writing that the SBA has completed its review. .
- If the SBA performs a loan review and determines that the borrower was not eligible for a PPP loan, the lender is not eligible for processing fees. The SBA can recover the processing fees within one year of the loan being disbursed.
- The borrower must keep the PPP documentation on file for six years after the date of cancellation or full repayment of the loan, and allow authorized representatives of the SBA, including representatives of its Office of the Inspector General, to access these files on request.