On July 23, 2020, the United States Small Business Administration (“SBA”) issued a Procedural Notice to inform lenders of the process for submitting decisions on loan forgiveness to the SBA and requesting payment for the forgivable amounts. The full Procedural Notice can be found here. The following explains some key guidance for lenders as they begin to accept applications.
What is a borrower required to submit to the lender?
A borrower is required to submit a completed Loan Forgiveness Application on SBA Form 3508 or 3508EZ (if qualified to do so), or a lender drafted equivalent. Additionally, based upon prior guidance from the United States Department of Treasury (“Treasury”) found here, a lender is required to obtain the following documentation and confirmations supporting the application:
i. Receipt of confirmation that the borrower certifications in the loan forgiveness application are true and accurate;
ii. All documentation verifying payroll costs and nonpayroll costs as set forth in the loan forgiveness application forms;
iii. All documentation confirming cash compensation and non-cash compensation to owners, business mortgage interest payments, business rent or lease payments, and business utility payments;
iv. Confirmation that the borrower made the calculations correctly on the loan forgiveness application form.
Given the amount of expected forgiveness applications, lenders will be held to a good-faith standard. The SBA has provided that the lender is entitled to rely on the borrower’s attestation and verification of accuracy of certifications, information and calculations, and the minimal review such as receipt of payroll reports of a recognized third-party payroll processor will be deemed in good-faith. If recognized sources are not used, the lender will be expected to conduct a more thorough review, including requesting additional information and/or documentation.
What is the timeline for the lender to make a decision on a loan forgiveness application?
The lender must issue a decision to the SBA within sixty (60) days of acceptance of a loan forgiveness application.
What if a lender determines that a borrower’s application for forgiveness is incomplete or contains errors?
If the Lender identifies errors in the borrower’s calculations or material lack of substantiation in the borrower’s supporting documents, the lender should work with the borrower to remedy the issue. The lender may demand any documentation that it deems necessary to provide the good-faith review, and the borrower shall not receive forgiveness without submitting all required documentation to the Lender.
How does a lender submit a loan forgiveness application?
All PPP lender authorizing officials already set up on the CAFS/ETRAN system will receive an email from [email protected] with detailed instructions on how to access the new platform and submit applications for forgiveness online. There is also a PPP Lender Hotline established for help with forgiveness questions: PPP Lender Hotline at 833-572-0502.
What must a lender report to the SBA as its decision on a loan forgiveness application?
The lender may approve in whole or in part, deny, or deny without prejudice pending SBA review in its report to the SBA. In the case of a denial without prejudice, the borrower may subsequently request that the lender reconsider its application for loan forgiveness, unless SBA has determined that the borrower is ineligible for a PPP loan.
What documents must a lender include in its report as to its decision to the SBA?
The lender must provide the SBA with its decision and reasons for its decision. Additionally, the lender should provide the SBA with the following:
1) the PPP Loan Forgiveness Calculation Form;
(2) PPP Schedule A; and
(3) the (optional) PPP Borrower Demographic Information Form (if submitted to the lender).
The lender must also certify to the SBA that the information accurately reflects lender's records for the loan, and that the lender has made its decision in accordance with the SBA requirements.
Is there a lender notice requirement to borrower upon its decision on forgiveness?
Yes, the SBA requires the lender to also notify the borrower in writing that the lender has issued a decision to SBA denying the loan forgiveness application.
Can a borrower request the SBA review the lender’s decision?
Yes, within 30 days of notice from the lender, a borrower may request in writing that the SBA directly review the lender's decision.
What is the timeline for SBA review and payment to the Lender?
The SBA will, subject to any SBA review of the loan or loan application, remit to the lender any approved forgiveness amount to the Lender, plus any interest accrued through the date of payment, within ninety (90) days of lender issuing its decision to the SBA. The SBA will deduct any EIDL advance amounts or amounts deemed not forgivable from such payment.
Will the SBA conduct its own review of the lender’s decision?
The SBA has reserved the right to review the lender's decision in its sole discretion. If the SBA undertakes such a review either at the borrower’s request or its own undertaking, the SBA will send a notice to the lender via the platform. Within 5 days of lender’s receipt of the notification, it must provide notice to the borrower in writing, and also submit to the SBA the following:
1) The Borrower Application Form (SBA Form 2483 or Lender’s equivalent form) and all supporting documentation provided by the borrower.
2) The Loan Forgiveness Application (SBA Form 3508, 3508EZ, or Lender’s equivalent form), and all supporting documentation required to be submitted by the borrower to the Lender with the Loan Forgiveness Application, including payroll documentation, non-payroll documentation, and full-time equivalent employee documentation, if applicable.
The Lender must also request that the borrower provide the Lender with the applicable documentation that the instructions to the Loan Forgiveness Application Form (SBA Form 3508, 3508EZ, or Lender’s equivalent form) instruct the borrower to maintain but not submit (documentation listed under “Documents that Each Borrower Must Maintain but is Not Required to Submit”). The Lender must submit the additional documents received from the borrower to SBA within 5 business days of receipt from the borrower.
3) A signed and certified transcript of account.
4) A copy of the executed note evidencing the PPP loan.
5) Any other documents related to the loan requested by SBA.