introduction

Along with the publication by the SBA and the Treasury of the provisional final rule on pardon (see our client alert here; for our full PPP coverage, Click here), on May 22, 2020, the SBA released the Interim Final Rule on Loan Review Procedures, which complements the Interim Final Rule on Remission by providing information to borrowers and lenders regarding the SBA’s process for lending ” review of PPP loan applications and loan forgiveness requests. Together with the PPP loan forgiveness request and the Interim Final Rule on forgiveness, the Interim Final Rule on Loan Review Procedures (discussed below) provides much-needed guidance to PPP borrowers and lenders.

SBA review of PPP loans

The SBA can initiate a review of a PPP loan of any size at any time. The Interim Final Rule on Loan Review Procedures identifies the following areas for consideration by the SBA:

  • Eligibility of borrower: The SBA can examine whether a borrower is eligible for the PPP loan based on the provisions of the CARES law, rules and guidance available at the time of the borrower’s loan application (in accordance with FAQ 17 of the PPP) and the conditions of the borrower’s loan application. The Interim Final Rule on Loan Review Procedures states that these review procedures include, but are not limited to, the SBA regulations under 13 CFR 120.110 (as amended and clarified by the Interim Final Rules PPP), and 13 CFR 121.301 (f), as well as the information, certifications and representations on the borrower’s PPP loan application form and on the borrower’s PPP loan forgiveness request.
  • Loan amounts and use of proceeds: The SBA can verify whether a borrower correctly calculated the loan amount and used the loan proceeds for the permitted uses specified in the CARES Act.
  • Loan forgiveness amounts: The SBA may consider whether a borrower is entitled to a loan forgiveness of the amount claimed on the borrower’s PPP loan forgiveness request, or whether a lower discount amount or a denial of forgiveness is warranted.

If the SBA notifies a lender that it is reviewing a loan, the lender must:

  • notify the borrower in writing within five business days of receipt by the lender of a notice of review from the SBA;
  • Within five business days of receiving notice from the SBA, the lender must provide the SBA with electronic copies of the following:
    • the borrower’s application form (SBA 2483 form or equivalent lender form) and all supporting documents provided by the borrower;
    • PPP loan forgiveness request and all supporting documents provided by the borrower (if the lender has received such a request);
    • a signed and certified transcript;
    • a copy of the signed note attesting to the PPP loan; and
    • any other document relating to the loan requested by SBA;
  • If the lender receives the PPP loan forgiveness request after receiving a notice that the SBA has started a review of the loan, forward electronic copies of the request and all supporting documentation provided by the borrower to the SBA within five working days following receipt; and
  • request the borrower to provide the lender with a copy of the worksheet in Schedule A to the PPP loan forgiveness application, and the lender must submit the worksheet to the SBA within five business days of receiving it by the borrower.

Once the SBA notifies the 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. his exam.

As part of its review, the SBA may contact borrowers directly or require lenders to contact borrowers in writing to request additional information. The lender must provide the SBA with any additional information provided to it by the borrower. The SBA will review all information provided by the borrower in response to the SBA’s request. A borrower’s inability to meet the SBA’s request may cause the SBA to determine that the borrower was not eligible for a PPP loan or ineligible to receive the loan amount or the cancellation amount. loan claimed by the borrower.

If the SBA determines that a borrower was not eligible for a PPP loan, the SBA will order the lender to deny the borrower’s loan forgiveness request. If the SBA determines that the borrower was ineligible for the loan amount he received Where is ineligible for the loan forgiveness amount requested in its PPP loan forgiveness request, the SBA will direct the lender to deny the loan forgiveness request, in whole or in part, as the case may be. In either case, the SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies.

A borrower can appeal the decision of the SBA that the borrower is ineligible for a PPP loan or ineligible for the loan amount or the loan cancellation amount claimed by the borrower. The Interim Final Rule on Loan Review Procedures indicates that the SBA intends to issue a separate Interim Final Rule regarding the appeal process.

Lenders’ review of PPP loans

Generally

Under the Interim Final Rule on Loan Review Procedures, each lender must confirm the following:

  • receipt of the borrower’s certificates contained in the loan waiver request form;
  • receipt of documentation that borrowers must submit to help verify salary and non-salary costs, as specified in the instructions for the PPP loan forgiveness request form;
  • the borrower’s calculations on the borrower’s loan forgiveness request by reviewing the documentation submitted with the loan forgiveness request; and
  • that the borrower has correctly calculated on line 10 of the loan forgiveness calculation form, by dividing the borrower’s eligible salary expenses claimed on line 1 of the borrower by 0.75.

Scope of the review

While confirming that it is the borrower’s responsibility to provide accurate calculations and that the lender can rely on the borrower’s statements, the Interim Final Rule on Loan Review Procedures requires lenders to “d ” carry out a good faith examination, within a reasonable time, of the borrower’s calculations and the supporting documents concerning the amounts eligible for loan forgiveness. Lenders are permitted to conduct a more limited review when the supporting payroll information is a payroll report from a recognized third-party payroll processor. The Interim Final Rule on Loan Review Procedures states that a more in-depth review of the borrower’s calculations and data would be appropriate when the relevant supporting documentation has not been prepared by these recognized third-party payroll providers. The SBA asks lenders who identify errors or a significant lack of justification in the borrower’s supporting documents to work with the borrower to remedy the problem.

The Interim Final Rule on Loan Review Procedures confirms that the lender does not need to independently verify the information provided by the borrower if the borrower submits documents in support of their cancellation request loan certificate and certifies that it has accurately verified the payments of the eligible costs.

Timeline of forgiveness

A lender must make a decision on a borrower’s PPP loan forgiveness request to the SBA no later than 60 days after the borrower’s lender receives a complete PPP loan forgiveness request and other documents. required.

The lender’s decision on a borrower’s PPP loan forgiveness request may be an approval (in whole or in part), a denial or, if ordered by the SBA, a denial without prejudice due to a pending review. loan from the SBA.

  • Approvals:
    • If the lender makes a decision to the SBA approving the borrower’s PPP loan forgiveness request in whole or in part, the lender must (1) include (A) the PPP loan forgiveness calculation form, (B) Schedule A of the PPP, and (C) if submitted to the lender by the borrower, the optional PPP borrower demographic information form, and (2) request payment from the SBA at the time the lender makes its decision to the SBA.
    • The SBA, subject to any SBA review of the loan or loan application, will remit the appropriate amount of remission to the lender, together with interest accrued to the date of payment, no later than 90 days after the lender made its decision to the SBA.
    • If the borrower has received an emergency advance under the Economic Disaster Lending (EIDL) program, the SBA will deduct the amount thereof from the borrower’s loan cancellation amount.
  • Refusal: If the lender makes a decision to the SBA denying the borrower’s forgiveness in whole or in part, the lender must provide the SBA with the reason for refusal, along with (1) the PPP loan forgiveness calculation form , (2) PPP Schedule A, and (3) PPP Borrower Demographic Information Form (optional) (if submitted to lender). The lender must also notify the borrower in writing that the lender has made a decision to the SBA denying the borrower’s request for loan cancellation.
  • Refusal without prejudice. The SBA may direct a lender to deny a borrower’s forgiveness request pending completion by the SBA of the PPP loan for which forgiveness is requested. The borrower can then ask the lender to reconsider a denial without prejudice, unless the SBA determines that the borrower was not eligible for a PPP loan.
  • Confirmation by the lender. The lender should confirm that the information provided by the lender to the SBA accurately reflects the lender’s records for the loan, and that the lender has made its decision in accordance with the requirements set out in section 2.a of the Interim Final Rule on the loan. review of loans. Procedures.
  • SBA review of lender decisions. SBA reserves the right to review the decision of the lender at its sole discretion.
  • Appeal by borrower. Within 30 days of the lender’s notification, the borrower may request the SBA to review the lender’s decision by revising the loan in accordance with section 2.c. of the Interim Final Rule on Loan Review Procedures.

Lender fees

The Interim Final Rule on Loan Review Procedures also provides requirements and guidance for lender processing fees for PPP loans. These guidelines include the circumstances in which a lender will not be eligible for a processing fee and when the processing fee is subject to a clawback.

Conclusion

The Interim Final Rule on Loan Review Procedures, as well as the Interim Final Rule on Forgiveness, provide new detailed guidelines and requirements for the surrender of PPP loans. We anticipate that additional guidance will be issued regarding PPP loan forgiveness and the appeal process in the event a PPP loan forgiveness is denied. Lewis Rice will continue to monitor these developments and provide updates as necessary.

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