- For second-draw loans only, verify that the supporting documentation reconciles to the borrower’s revenue reduction calculation. (The SBA’s requirements for second-draw PPP loans likely will not come due until this summer at the earliest.)
Lenders have 60 days from receipt of a complete application to issue a decision on forgiveness to the SBA. Decisions made must be one of the following: approval in whole, approval in part, or denial. Approval in part would happen if the lender determined that the borrower is not eligible for the entire amount of forgiveness requested-for example, if payroll costs do not exceed 60 percent of total eligible costs.
Communicating forgiveness decisions with the SBA and borrower
Although loan forgiveness must be determined by the lender, all loan decisions must be submitted to the SBA. The SBA gets final say on loan forgiveness for PPP loans which it chooses to review. In order to finalize, the lender must follow separate processes for loans that are approved (in whole or in part) and loans that are denied.
Approved loans. Approved loans must be submitted by the lender to the SBA with the initial application form and loan forgiveness form attached. The lender is required to confirm that the information provided to the SBA accurately reflects the lender’s records, similar to the borrower’s attestation and confirmed via its good-faith review. The lender also is responsible for requesting payment from the SBA at the time of its decision. Once received, the SBA will remit the appropriate forgiveness amount to the lender plus interest, no later than 90 days after receipt of the payment request, subject to any SBA review of the borrower’s loan. The lender is then responsible for communicating to the borrower the remittance by the SBA and total loan forgiveness amount.
Denied loans. On the other hand, if the lender determines that the borrower is not entitled to forgiveness in any amount, the lender is required to provide the SBA with the reason for its denial. Reasons can include inaccurate, incomplete, or falsified records; borrower PPP loan ineligibility; or misuse of PPP funds (such as funds not being spent on payroll or applicable non-payroll costs). Similar to approved loans, the lender must confirm that the information provided by the lender to the SBA accurately reflects the lender’s records.
The lender must also notify the borrower regarding its decision to deny the loan forgiveness application, including the reason for denial. This triggers a 30-day window in which the borrower can appeal the lender’s decision directly to the SBA. It is up to the discretion of the SBA whether it wishes to review the borrower’s appeal. The SBA will notify the lender if it does intend to perform a review. If so, the lender is responsible for acting as the intermediary in this situation, informing the borrower of the SBA’s intent to review and providing any documentation the SBA requires until its review is complete.
You’re almost there
Do not feel stressed by the overwhelming amount of guidance issued by the SBA related to PPP loan forgiveness. The core of the requirements is focused around making sure that the borrower’s forgiveness application is complete, accurate and tied to supporting documentation-and that submitted costs comply with eligibility requirements. It is also important that communications with the SBA and borrower are clear and completed timely. At the same time, stay on the lookout for updated guidance from the SBA as the PPP continues to evolve.
Lastly, do not lose sight of the vital role your institution has played in helping small business owners keep their heads above water as we all continue to battle through this pandemic. The light at the end of the tunnel is growing brighter by the day.