SBA Issues Forgiveness Guidance for Lenders & PPP Loan Forgiveness Checklist

By Caryn F. Price

Interim Final Rules issued by the Small Business Administration and Treasury Department late Friday night provide additional guidance to lenders on forgiveness of loans made under the Paycheck Protection Program.  Under the rules:

Lender’s Duties With Respect to Forgiveness Applications.  For all loan forgiveness applications, the lender will be required to confirm receipt of the borrower certifications contained in the application and the documentation borrowers must submit to aid in verifying payroll and non-payroll costs, as well as confirm the borrower’s calculations on the application. Lenders also must confirm that the borrower made the loan forgiveness calculation correctly, by dividing the borrower’s eligible payroll costs claimed by 0.75.  Lenders are expected to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents.

Reliance on Borrower Representations.  The rules provide that lenders may rely on borrower representations. However,  if the lender identifies errors in the borrower’s calculation or a material lack of substantiation in the borrower’s supporting documents, the lender must work with the borrower to remedy the issue. Lenders will not need to independently verify the borrower’s reported information if the borrower submits documentation supporting its forgiveness request and attests that it accurately verified the payments for eligible costs.

Decisions on Loan Forgiveness Applications.  The lender must issue a decision to the SBA on a loan forgiveness application not later than 60 days after receipt of a complete application from the borrower. That decision may take the form of an approval in whole or in part, denial, or, if directed by the SBA, a denial without prejudice due to a pending SBA review of the loan. In the case of a denial without prejudice, the borrower may subsequently request that the lender reconsider its application unless the SBA has determined that the borrower is ineligible.

When the lender issues its decision to the SBA, it must request payment from the SBA and include the loan forgiveness calculation form and Schedule A.  Subject to any SBA review of the loan or loan application, the SBA will remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, within  90 days. If the lender determines that the borrower is not entitled to forgiveness in any amount, the lender must provide the SBA copies of Schedule A and the PPP borrower demographic information form (if submitted to the lender).  In either case, the lender must confirm that the information provided by the lender to the SBA accurately reflects its records for the loan, and that the lender made its decision in accordance with applicable requirements. The lender must also notify the borrower in writing that the lender has issued a decision to the SBA denying the loan forgiveness application.

SBA Review of PPP Loans.  The SBA may review any PPP loan at any time in its discretion.  That review may examine the borrower’s eligibility, the calculation of the loan amount, whether the borrower used the loan proceeds for allowable uses and whether the borrower is entitled to loan forgiveness in the amount claimed in the borrower’s loan forgiveness application.  If the SBA undertakes such a review, the SBA will notify the lender in writing and the lender must then notify the borrower.  In addition, the lender will be required to transmit to the SBA, among other things, electronic copies of the borrower application (SBA Form 2483 or lender’s equivalent form), and the loan forgiveness application, if any (SBA Form 3508 or lender’s equivalent form), as well as all supporting documentation provided by the borrower. The lender must also request that the borrower provide a copy of the Schedule A worksheet to the loan forgiveness application and submit the worksheet to the SBA. 

If the loan documentation submitted to the SBA or any other information indicates that the borrower may be ineligible for a PPP loan or may be ineligible to receive the loan amount or loan forgiveness amount claimed, the lender will be required to contact the borrower to request additional information and provide any additional information provided to the SBA.  If the SBA notifies the lender that it has commenced a loan review, the lender may not approve an application for loan forgiveness until the SBA notifies the lender in writing that it has completed its review.

SBA Denial of Forgiveness Application.  The SBA may direct a lender to deny a loan forgiveness application if it determines that a borrower is ineligible for the PPP loan.  It may direct a  lender to deny an application, in whole or in part, if it determines that the borrower is ineligible for the loan amount or loan forgiveness amount claimed.  It may also seek repayment of the outstanding PPP loan balance or pursue other available remedies.

Document Retention.  Lenders must comply with applicable SBA requirements for records retention, which for Federally regulated lenders means compliance with the requirements of their federal financial institution regulator.

Eligibility for Processing Fees.  Lenders will be required to forfeit and repay to the SBA any lender processing fee received for any SBA-reviewed PPP loan if, within one year after the loan was disbursed, the SBA determines that a borrower was ineligible based on the provisions of the CARES Act or applicable rules or guidance available at the time of the borrower’s loan application, or the terms of the loan application.  If a lender fails to satisfy its applicable obligations, the SBA may also seek repayment of the lender processing fee from the lender and may determine that the loan is not eligible for a guaranty.

PPP Loan Forgiveness Checklist

Required Documentation for Borrower’s Forgiveness Application:

  • confirm receipt of the borrower certifications contained in the forgiveness application
  • confirm receipt and review the documentation borrower must submit to aid in verifying payroll and non-payroll costs
  • check the borrower’s calculations on the application (divide the borrower’s eligible payroll costs claimed by 0.75)
  • confirm the borrower has corrected any errors identified during the review

Within 60 days after receipt of complete Forgiveness Application:

  • issue decision to the SBA of lender’s decision on the loan forgiveness application
    • approval in whole or in part
    • denial
    • if directed by the SBA, a denial without prejudice due to a pending SBA review of the loan

Note:  If the SBA notifies the lender that it has commenced a loan review, the lender may not approve an application for loan forgiveness until the SBA notifies the lender in writing that it has completed its review.

  • request payment from the SBA and include the loan forgiveness calculation form and Schedule A
  • provide the SBA copies of Schedule A and the PPP borrower demographic information form (if submitted to the lender) if there is a determination that the borrower is not entitled to forgiveness in any amount
  • confirm that the information provided by the lender to the SBA accurately reflects its records for the loan, and that the lender made its decision in accordance with applicable requirements
  • notify the borrower of the lender’s decision on the loan (written notice of denial required)

When the SBA undertakes a review of a PPP loan:

  • notify the borrower if/when notified that SBA is undertaking review
  • transmit to the SBA electronic copies of the borrower application and the loan forgiveness application, as well as all supporting documentation provided by the borrower
  • request that the borrower provide a copy of the Schedule A worksheet to the loan forgiveness application and submit the worksheet to the SBA 
  • if required, contact the borrower to request additional information and provide any additional information provided to the SBA

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