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Financial Services Law Insights and Observations

SBA clarifies PPP loan forgiveness process, lender and borrower responsibilities

Federal Issues SBA Small Business Lending Covid-19 Department of Treasury

Federal Issues

Recently, the Small Business Administration released two interim final rules (IFR) to provide guidance on the Paycheck Protection Program (PPP) loan forgiveness process, as well as directions on lender and borrower responsibilities. Both IFRs are effective immediately, and comments will be received for 30 days following publication in the Federal Register.

The loan forgiveness IFR outlines PPP loan forgiveness requirements for borrowers and lenders. Among other things, lenders must confirm that they received the borrower certifications in the loan forgiveness application form (covered by InfoBytes here) and verify the borrower’s calculations. The IFR also clarifies several questions, including those related to employee status, payroll calculations, and nonpayroll expenses eligible for forgiveness.

The lender and borrower responsibilities IFR provides additional guidance on the SBA PPP loan review, the loan forgiveness process for lenders, and lender eligibility for processing fees. While the IFR recommends that lenders work with borrowers to correct identified “errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documents,” it does not require lenders 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.” Lenders must report their decisions on forgiveness applications to the SBA and request payment from the SBA for borrowers that are eligible for forgiveness no later than 60 days after receiving a complete application. The SBA also has the authority to review any PPP loan, although it will evaluate a loan based on the “rules and guidance available at the time of the borrower’s PPP loan application.” In addition, the IFR notes that lenders may lose fees for any loans deemed to be ineligible, and that the SBA may claw back already issued-fees if it determines the lender has failed to fulfill its obligations under the PPP. According to the IFR, lenders will receive payment from the SBA on eligible loans, plus any accrued interest through the date of payment, no later than 90 days after a lender reports its decision to SBA. 

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