Paycheck Protection Program Borrower and Lender Responsibilities

This article was updated on May 26, 2020. Updates to this article will be made as new information becomes available.

Schneider Downs continues to track the evolving landscape of Federal financial programs offered due to the disruption caused by the coronavirus crisis (COVID-19). On May 22, 2020, the U.S. Small Business Administration (SBA), in consultation with the Department of the Treasury, released an Interim Final Rule (IFR) on borrower and lender responsibilities in relation to the SBA’s process of reviewing Paycheck Protection Program (PPP) loan applications and loan forgiveness applications.

1. Review of Individual Loans

The SBA may review any individual PPP loans at its discretion and is authorized to review (1) borrower eligibility; (2) loan amounts and use of proceeds; and (3) loan forgiveness amounts. The timing of a loan review is also at the discretion of the SBA, but borrowers are required to maintain documentation for a period of 6 years after the date the loan is forgiven or repaid in full. Lenders are also required to maintain documentation with applicable SBA requirements for records retention (13 CFR 120.461).

Borrowers will have the opportunity to respond to inquiries on eligibility, loan amount or uses, or forgiveness requests. The SBA requires the lender to contact the borrower in writing to request additional information, but the SBA may also request information directly from the borrower. Failure to respond may result in a determination that the borrower was ineligible for the loan, ineligible to receive the loan amount or ineligible for loan forgiveness.

If a borrower were to apply for forgiveness and is deemed to be ineligible, the SBA will notify the lender of such. The lender will deny the loan forgiveness in whole or in part and the SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies. The determination that a borrower is ineligible may be appealed, the process of which will be further addressed by a separate interim final rule.

2. Lender Loan Forgiveness Process

Lenders will be required to confirm: (a) receipt of borrower certifications; (b) receipt of documentation to aid in verifying payroll and non-payroll costs; and (c) the borrower’s calculations on the Loan Forgiveness Application (including lines 1, 2, 3, 4, 6, 7, 8 and 10). The accuracy of the information and calculations are the responsibility of the borrowers, but lenders are expected to perform a good faith review of the borrower’s calculations and supporting documentation. Lenders have 60 days to render a decision (approval, denial or denial without prejudice at the direction of the SBA) on the borrower’s loan forgiveness.

Lenders are not eligible for process fees on loans determined to be ineligible. The SBA may seek repayment upon a loan review only to the extent that the review was completed within 1 year from the loan’s disbursement date. The determination of a loan being ineligible does not affect the SBA’s guaranty of the loan. However, if the lender were not to comply with the applicable regulations and rules, then the SBA will seek repayment of the process fee and will not guarantee the loan.

If you need more information or assistance regarding the PPP, please reach out to any of your contacts at Schneider Downs or contact Joel Rosenthal ([email protected]).