Menu
Get In Touch
Share

Legal Articles

The Lender’s Role in the PPP Loan Review Process

After the Economic Aid Act: An Updated Guide to the PPP Loan Forgiveness Review and Appeals Process, ‎Part 3‎

January 26, 2021

Overview

Lenders play a large role in the Paycheck Protection Program (“PPP”) loan forgiveness review and appeals process.

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act” or “PPP2 Act”), new forgiveness application forms, and the Interim Final Rule on Loan Forgiveness Requirements and Loan Review Procedures as Amended by Economic Aid Act (“2021 Forgiveness IFR”), posted by the Small Business Administration (the “SBA”) in consultation with the Department of Treasury (“Treasury”), may raise new questions related to PPP loan forgiveness.

To explore the latest information, we created a four-part series that may offer some insight into the latest updates:

Understanding the lender’s role in the PPP loan forgiveness review process may offer clarity for borrowers in seeking forgiveness, and this is outlined in the article below.

Lender’s General Role in Review Process

In General: Borrowers bear sole responsibility for providing accurate calculations of the loan forgiveness amount and for attesting to the accuracy of information in the loan forgiveness application. 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.

The SBA provides the following examples: 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 will not receive forgiveness without submitting all required documentation to the lender.

The SBA emphasizes that lenders may rely on borrower representations. If the lender identities errors in the borrower’s calculations or if there is a material lack of substantiation in the borrower’s supporting documentation, the lender is to work with the borrower to remedy the issue. However, lenders are not required 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.

Forms: The lender’s review depends on the type of loan forgiveness application.

  • Form 3508: When a borrower submits to its lender SBA Form 3508 or the lender’s equivalent loan forgiveness application form, the lender must (i) confirm receipt of the borrower’s certifications contained in the form; (ii) confirm receipt of the documentation the borrower must submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the form; (iii) confirm the borrower’s calculations on the forms, 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, Business Utility Payments, Covered Operations Expenditures, Covered Property Damage Costs, Covered Supplier Costs, and Covered Worker Protection Expenditures claimed on Lines 2 through 8 on the PPP Loan Forgiveness Calculation Form, by reviewing the documentation submitted with the SBA Form 3508 or lender’s equivalent form; and (iv) confirm that the borrower made the calculation on Line 14 of the SBA Form 3508 or lender’s equivalent form correctly, by dividing the borrower’s Eligible Payroll Costs claimed on Line 1 by 0.60.
  • Form 3508EZ: When the borrower submits SBA Form 3508EZ or the lender’s equivalent form, the lender must (i) confirm receipt of the borrower certifications contained in the Form 3508EZ or lender’s equivalent form; (ii) confirm receipt of the documentation the borrower must submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the SBA Form 3508EZ or lender’s equivalent form; (iii) confirm the borrower’s calculations on the borrower’s SBA Form 3508EZ or lender’s equivalent form, including the dollar amount of the Payroll Costs, Business Mortgage Interest Payments, Business Rent or Lease Payments, Business Utility Payments, Covered Operations Expenditures, Covered Property Damage Costs, Covered Supplier Costs, and Covered Worker Protection Expenditures claimed on Lines 1 through 8 of the SBA Form 3508EZ or lender’s equivalent form, by reviewing the documentation submitted with the SBA Form 3508EZ or lender’s equivalent form; and (iv) confirm that the borrower made the calculation on Line 11 of the SBA Form 3508EZ or lender’s equivalent form correctly, by dividing the borrower’s Eligible Payroll Costs claimed on Line 1 by 0.60.
  • Form 3508S: When a borrower submits SBA Form 3508S or the lender’s equivalent form, the lender must: (i) confirm receipt of the borrower certifications contained in the SBA Form 3508S or lender’s equivalent form; and (ii) in the case of a Second Draw PPP Loan for which the borrower did not provide documentation of revenue reduction with its application and the lender did not conduct a review of the documentation at the time of application, confirm the dollar amount and percentage of the borrower’s revenue reduction by performing a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning the borrower’s revenue reduction.

Lender’s Timeline
Upon receiving a borrower’s loan forgiveness application, lenders are responsible for conducting the review procedures outlined above and issuing a decision to the SBA regarding loan forgiveness. A lender must issue a decision to the SBA on a loan forgiveness application not later than 60 days after receipt of a complete loan forgiveness application from the borrower. The lender’s decision may take the form of an approval (in whole or in part), denial, or (if directed by the SBA) a denial without prejudice due to 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 the SBA has determined that the borrower is ineligible for a PPP loan.

Lender’s Receipt That the SBA Is Reviewing the Loan
If the SBA undertakes a review, the SBA will notify the lender in writing and the lender must notify the borrower in writing within five business days of receipt. The lender must also transmit certain documents to the SBA, and the lender must request that the borrower provide the lender with applicable documentation that the instructions to the form instruct the borrower to maintain but not submit.

If the SBA has notified the lender that the SBA has commenced a loan review, the lender should issue a forgiveness decision to the SBA not later than 60 days after receipt of the complete loan forgiveness application from the borrower, unless otherwise directed by the SBA.

Lender’s Approval of Forgiveness
If the lender issues a decision to the SBA approving the application (in whole or in part), the lender must provide the SBA with certain documentation. The lender must confirm that the information the lender provided to the SBA accurately reflects the lender’s records for the loan, and that the lender has made its decision in accordance with the requirements in the 2021 Forgiveness IFR. 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 the SBA at the time the lender issues its decision to the SBA.

The SBA will, subject to any SBA review of the borrower’s loan(s) or loan application(s), 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. The EIDL Advance Amount will not reduce the amount of the forgiveness. The lender is responsible for notifying the borrower of remittance by the SBA of the loan forgiveness amount (or that the SBA determined that no amount of the loan is eligible for forgiveness) and the date on which the borrower’s first payment is due, if applicable.

Lender’s Denial of Forgiveness in Whole or in Part
If the lender issues a decision to the SBA determining that the borrower is not entitled to forgiveness in any amount, the lender must provide the SBA with the reason for the denial and certain documentation. The lender must confirm that the information the lender provided to the SBA accurately reflects the lender’s records for the loan, and that the lender has made its decision in accordance with the requirements in the 2021 Forgiveness IFR.

The lender must also notify the borrower in writing that the lender has issued a decision to the SBA denying the loan forgiveness application and provide the SBA with a copy of the notice. The notice to the borrower must include the reasons that the lender concluded that the borrower is not entitled to loan forgiveness in any amount and inform the borrower that the borrower has 30 calendar days from receipt of the notification to seek, through the lender, SBA review of the lender’s decision. The SBA reserves the right to review the lender’s decision in its sole discretion.

Borrower’s Request for Review of Lender’s Decision

Within 30 days of notice from the lender, a borrower may notify the lender that it is requesting that the SBA review the lender’s decision in accordance with the 2021 Forgiveness IFR. Within five days of receipt, the lender must notify the SBA of the borrower’s request for review.

  • SBA Declines Borrower’s Request for Review: The SBA will notify the lender if the SBA declines a request for review. If the borrower does not timely request SBA review of the lender’s initial decision or if the SBA declines the request for review, the lender is responsible for notifying the borrower of the date on which the borrower’s first payment is due.
  • SBA Accepts Request for Review: If the SBA accepts the borrower’s request for review, the SBA will notify the borrower and the lender of the results of the review.

SBA Denies Forgiveness

Similarly, if the SBA denies forgiveness in whole or in part, the lender is responsible for notifying the borrower of the date on which the borrower’s first payment is due. The SBA is entitled to use the statutory 90-day review period.

To learn more about PPP appeals, please view the next article in our After the Economic Aid Act: An Updated Guide to the PPP Loan Forgiveness Review and Appeals Process series, “What to Know about PPP Appeals and Next Steps‎.”

This article summarizes aspects of the law relevant to the PPP; it does not constitute legal advice. For legal advice for your situation, you should contact an attorney. 

Professionals

Related Services

Related Industries

Written By

Share