Knowledge and Insights

SBA Interim Final Rules on PPP Loan Forgiveness & Borrower/Lender Responsibilities

On May 22, 2020, new interim final rules were released by the Small Business Administration (SBA) providing guidance to borrowers and lenders regarding the SBA’s review process under the Paycheck Protection Program (PPP), including the loan forgiveness calculation and eligibility.

Highlights from the May 22, 2020 interim final rules are as follows:

  • The SBA review process assesses borrower eligibility and whether the information, certifications, and representations on the borrower’s application and loan forgiveness application are accurate as well as whether the borrower is eligible for loan forgiveness.
    • If the borrower is found to be ineligible for the loan amount or the loan forgiveness amount claimed, the SBA will direct the lender to deny the loan forgiveness application, in whole or in part. The SBA may also require repayment of the outstanding PPP loan balance or other potential remedies.
  • Non-recourse provisions of the loan only apply if the borrower is deemed to be eligible for the loan. If the borrower is eligible, then there is no personal liability. However, the SBA can pursue individual shareholders, members, or partners of a PPP borrower for nonpayment of a PPP loan if the borrower is not an eligible borrower.
  • The borrower is responsible for accurately calculating the amount of loan forgiveness and must attest to the accuracy of the information reported.
  • Lenders are expected to perform a good-faith review of the borrower’s calculation of amounts eligible for loan forgiveness and underlying supporting documents within a reasonable time.
    • A reasonable review of calculations provided on a payroll report submitted by a reputable third-party payroll processor would be acceptable. However, if payroll costs are not provided by recognized sources, a more extensive review of calculations and supporting documents would be required.
  • If the lender discovers errors in or a lack of support for the borrower’s calculation, the lender should work with the borrower to remedy the issue.
  • Lenders must issue a loan forgiveness decision to the SBA not later than 60 days following receipt of borrower’s complete loan forgiveness application.
    • The lender’s decision may be: (1) an approval, in whole or in part; (2) denial; or (3) a denial without prejudice due to a pending SBA review of the loan for forgiveness.
    • However, the borrower may subsequently request that the lender reconsider its loan forgiveness application in a denial without prejudice decision, unless the SBA determined that the borrower is ineligible for a PPP loan.
  • If the lender determines that the borrower is entitled to forgiveness (in whole or part), the SBA will 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.
    • If applicable, the SBA will deduct Economic Injury Disaster Loan (EIDL) advance amounts from the forgiveness amount.
  • If the lender determines that the borrower is not entitled to forgiveness in any amount, the lender must provide its reason for denial to the SBA and must notify the borrower in writing of its decision. Within 30 days of notice from the lender, a borrower can request that the SBA review the lender’s decision.
  • If the SBA performs a review, the SBA will notify the lender in writing. The lender must then notify the borrower in writing within five business days of receipt of the SBA’s notification. If the SBA notifies a lender of its intern to initiate a loan review, the lender may not approve any application for loan forgiveness until the SBA notifies the lender in writing that the SBA has completed its review.
  • If the SBA performs a loan review and determines that the borrower was ineligible for a PPP loan, the lender is not eligible for a processing fee and the SBA may claw back the processing fee within one year after the loan was disbursed.
  • The borrower must retain PPP documentation in its files for six (6) years after the date the loan is forgiven or repaid in full. The borrower must also permit authorized representatives of the SBA, including representatives of its Office of Inspector General, to access such files upon request.

For more details, please read the rules on the loan forgiveness process and lender and borrower responsibilities below.

Read the rule on the loan forgiveness process

Read the rule on lender and borrower responsibilities

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice, and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.