On May 22, 2020, the U.S. Small Business Administration (“SBA”) posted a fifteenth Interim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities. This Interim Final Rule supplements the previously posted interim final rules in order to inform borrowers and lenders of SBA’s process for reviewing Paycheck Protection Program (“PPP”) loan applications and loan forgiveness applications. This Interim Final Rule supplements the interim final rule on Loan Forgiveness posted contemporaneously with this interim final rule. This rule is being issued to allow for immediate implementation of the forgiveness component of the program.
The Small Business Act authorizes the Administrator to conduct investigations to determine whether a recipient or participant in any assistance under a 7(a) program, including the PPP, is ineligible for a loan, or has violated section 7(a), or any rule, regulation or order issued thereunder [15 U.S.C. § 634(b)(11)]. The Administrator, in consultation with the Treasury Secretary, has determined that it is appropriate to adopt additional procedures and criteria through which SBA will review whether an action by the borrower has resulted in its receipt of a PPP loan that did not meet program requirements.
SBA review of borrower certifications and representations
SBA may review any PPP loan it deems appropriate. This includes reviewing the borrower’s certifications and representations regarding their eligibility for a PPP loan, the use of PPP loan proceeds and loan forgiveness as follows:
- Borrower Eligibility: The Administrator may review whether a borrower is eligible for the PPP loan based on the provisions of the CARES Act, the rules and guidance available at the time of the borrower’s PPP loan application, and the terms of the borrower’s loan application. These include, but are not limited to, SBA’s regulations under 13 CFR 120.110 and 13 CFR 121.301(f) and the information, certifications and representations on the Borrower Application Form and Loan Forgiveness Application Form.
- Loan Amounts and Use of Proceeds: The Administrator may review whether a borrower calculated the loan amount correctly and used loan proceeds for the allowable uses specified in the CARES Act.
- Loan Forgiveness Amounts: The Administrator may review whether a borrower is entitled to loan forgiveness in the amount claimed on the borrower’s Loan Forgiveness Application.
SBA Loan Review Process
SBA may undertake a review of any size PPP loan at any time in SBA’s discretion. For example, SBA may review a loan if the documentation submitted to SBA by the lender 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 by the borrower. As noted on the Loan Forgiveness Application Form, the borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.
If loan documentation submitted to SBA by the lender 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 by the borrower, SBA will require the lender to contact the borrower in writing to request additional information. SBA may also request information directly from the borrower. The lender will provide any additional information provided to it by the borrower to SBA. SBA will consider all information provided by the borrower in response to such an inquiry. Failure to respond to SBA’s inquiry may result in a determination that the borrower was ineligible for a PPP loan or ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower.
If SBA determines that a borrower is ineligible for the PPP loan, SBA will direct the lender to deny the loan forgiveness application. Further, if SBA determines that the borrower is ineligible for the loan amount or loan forgiveness amount claimed by the borrower, SBA will direct the lender to deny the loan forgiveness application in whole or in part, as appropriate. SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies. The Administrator has determined that to be an “eligible recipient” that is entitled to forgiveness under section 1106(b), the borrower must be an “eligible recipient” under 15 U.S.C. § 636(a)(36)(A)(iv) and rules and guidance available at the time of the borrower’s loan application.
SBA intends to issue a separate interim final rule addressing the process by which a borrower can appeal SBA’s determination that the borrower is ineligible for a PPP loan or ineligible for the loan amount or the loan forgiveness amount.
Lender Loan Review Process
Lenders are required to review the following for all PPP loan forgiveness applications:
- Confirm receipt of the borrower certifications contained in the Loan Forgiveness Application Form.
- Confirm receipt of the documentation borrowers must submit to aid in verifying payroll and non-payroll costs, as specified in the instructions to the Loan Forgiveness Application Form.
- Confirm the borrower’s calculations on the Loan Forgiveness Application, including the dollar amount of the (A) Cash Compensation, Non-Cash Compensation, and Compensation to Owners claimed on Lines 1, 4, 6, 7, 8, and 9 on PPP Schedule A, and (B) Business Mortgage Interest Payments, Business Rent or Lease Payments, and Business Utility Payments claimed on Lines 2, 3, and 4 on the PPP Loan Forgiveness Calculation Form, by reviewing the documentation submitted with the Loan Forgiveness Application.
- Confirm that the borrower made the calculation on Line 10 of the Loan Forgiveness Calculation Form correctly, by dividing the borrower’s Eligible Payroll Costs claimed on Line 1 by 0.75.
Lenders are expected to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness. For example, minimal review of calculations based on a payroll report by a recognized third-party payroll processor would be reasonable. By contrast, if payroll costs are not documented with such recognized sources, more extensive review of calculations and data would be appropriate. The borrower shall not receive forgiveness without submitting all required documentation to the lender, as providing an accurate calculation of the loan forgiveness amount and providing necessary documentation is the responsibility of the borrower.
As Interim Final Rule 1 indicates, lenders may rely on borrower representations. If the lender identifies errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documents, the lender should work with the borrower to remedy the issue. As stated in paragraph III.3.c of the Interim Final Rule 1, the lender does not need 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.
Lender Review Timeline
The lender must issue a decision to SBA on a loan forgiveness application not later than 60 days after receipt of a complete loan forgiveness application from the borrower. That decision may take the form of an approval (in whole or in part); denial; or (if directed by SBA) a denial without prejudice due to a pending SBA review of the loan for which forgiveness is sought. 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.
When the lender issues its decision to SBA approving the application (in whole or in part), it must include (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). If the lender determines that the borrower is entitled to forgiveness of some or all of the amount applied for under the statute and applicable regulations, the lender must request payment from SBA at the time the lender issues its decision to SBA. SBA will (subject to review of the loan or loan application), remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, not later than 90 days after the lender issues its decision to SBA.
Enabling SBA to use the statutory 90-day period to review the PPP loan and forgiveness documentation is an appropriate procedural protection to prevent fraud or misuse of PPP funds, ensure that recipients of PPP loans are within the scope of entities that the CARES Act is intended to assist, and confirm compliance with the PPP requirements set forth in the statute, rules, and guidance.
When the lender issues its decision to SBA determining that the borrower is not entitled to forgiveness in any amount, the lender must provide SBA with the reason for its denial, together with all loan forgiveness application forms submitted by the borrower. The lender must also notify the borrower in writing that they issued a decision to SBA denying the loan forgiveness application. SBA reserves the right to review the lender’s decision in its sole discretion. Within 30 days of notice from the lender, a borrower may request that SBA review the lender’s decision by reviewing the loan in accordance with the guidelines outlined in section 2(c) of this Interim Final Rule. If SBA undertakes such a review, SBA will notify the lender in writing and the lender must notify the borrower in writing within five business days of receipt. If SBA has notified the lender that SBA has commenced a loan review, the lender shall not approve any application for loan forgiveness for such loan until SBA notifies the lender in writing that SBA has completed its review.
Lender Fees
If SBA conducts a loan review and determines that the borrower was ineligible for a PPP loan, the lender is not eligible for a processing fee. Lender processing fees are also subject to clawback if SBA subsequently determines (within one year after the loan was disbursed) that a borrower was ineligible for a PPP loan based on the provisions of the CARES Act or applicable rules or guidance available at the time of the borrower’s loan application. SBA’s determination of borrower eligibility will have no effect on SBA’s guaranty of the loan if the lender has complied with its obligations as set forth Interim Final Rule 1 and the document collection and retention requirements described in the lender application form (SBA Form 2484). If a lender fails to fulfill their obligations under PPP regulations (see preceding sentence), SBA will seek repayment of the lender processing fee from the lender and may determine that the loan is not eligible for a guaranty.
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