On Friday, May 22, 2020, the U.S. Small Business Administration (SBA) released long-awaited guidance for lenders in the form of an interim rule: Business Loan Program Temporary Changes; Paycheck Protection Program – SBA Loan Review Procedures and Related Borrower and Lender Responsibilities. We’ve taken a look at the important aspects of this rule, and summarized the highlights of the guidance.
Lender’s Review Responsibilities
Lenders are expected to perform a good faith review of the borrower’s calculations and supporting documents concerning amounts eligible for forgiveness. The lender has 60 days from the date of receipt of the application for forgiveness from the borrower to review and approve (in whole or in part) or deny the forgiveness request. If some forgiveness is approved, the SBA (subject to any review of the loan or loan application) will remit the forgiveness amount to the lender, plus any interest accrued through the date of payment, no later than 90 days after the lender issues its decision to the SBA.
The level of review and verification of documentation provided from unknown sources may require a deeper level of review and verification than documentation provided from well-known sources. For example, if payroll amounts are derived from Automatic Data Processing, Inc. (ADP), the review of this documentation can be less than if the amounts are derived from an unrecognized source.
In accordance with the interim rule, a lender should perform the following over the Loan Forgiveness Application:
- Confirm receipt of the borrower certifications
- Confirm receipt of the documentation borrowers must submit to aid in verifying payroll and non-payroll costs
- Review the documentation submitted and confirm the borrower’s calculation of forgiveness, including the dollar amounts of compensation claimed on PPP Schedule A
- Review the documentation submitted and confirm the borrower’s calculations of forgiveness for non-payroll costs on the PPP Loan Forgiveness Calculation Form
- Confirm that the borrower made the 75/25 calculation between payroll and non-payroll costs on the Loan Forgiveness Calculation Form correctly
If during this review, the lender identifies errors in the borrower’s calculation or material lack of substantiation in the supporting documentation, the lender should work with the borrower to remedy the issue.
What Does this Mean for a Lender?
At a minimum, a lender must obtain the supporting documentation for payroll and non-payroll costs, verify that the documentation appears valid, and agree the amounts per the calculation of forgiveness back to this supporting documentation. This will require employees with a relevant level of knowledge to perform these tasks.
If the lender hasn’t fulfilled its obligations under PPP regulations, including performing the good-faith review and ensuring all of the required documentation for forgiveness is received from the borrower, not only can the SBA claw back some of the processing fees, but the SBA may determine that the loan is no longer guaranteed.
SBA Review of Borrower Forgiveness
The SBA made it clear that they are authorized to review any PPP loan for:
- Whether the borrower is eligible for the PPP loan based on the provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the rules and guidance available at the time of the borrower’s loan application, and the terms of the borrower’s loan application
- Whether a borrower calculated the loan amount correctly and used loan proceeds for the allowable uses specified in the CARES Act
- Whether a borrower is entitled to loan forgiveness in the amount claimed on the borrower’s Loan Forgiveness Application
The SBA may undertake a review of a PPP loan of any size at any time at their discretion. For instance, if they determine that the documentation submitted by the lender indicates that the borrower wasn’t eligible for the loan forgiveness amount claimed, the SBA can review that loan.
As borrower’s are required to maintain documentation supporting the loan for six years after the date the loan is forgiven or repaid in full, we believe that there is a six-year window for review by the SBA.
To discuss assistance with your PPP Loan Review Forgiveness process, please reach out to Dan Morrill, CPA at [email protected] or (413) 726-6857, or Andrew Billeter, CPA at [email protected] or (413) 726-6875.