Lender Guidance for the Paycheck Protection Program: Round 2

By: Zachary Sandoval

Paycheck Protection Program: Lender Guidance

PPP Basics

Lender Eligibility

All existing Small Business Administration (SBA) certified lenders will be given delegated authority to speedily process Paycheck Protection Program (PPP) loans. All federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions are eligible to participate in this program. New lenders that are federally insured depository institutions, federally insured credit unions, or Farm Credit System institutions will need to submit their application to DelegatedAuthority@sba.gov to apply.

Non-bank and non-insured depository institution lenders can also begin making loans as soon as they are approved and enrolled in the program. New lenders that are non-bank or non-insured depository institution lenders will need to submit their application to NFRLApplicationForPPP@sba.gov to apply.

Amount Guaranteed

The SBA guarantees 100% of the outstanding balance, and that guarantee is backed by the full faith and credit of the United States. However, at least 60% of the forgiven amount must have been used for payroll.

Lender Compensation

Processing fees will be based on the balance of the financing outstanding at the time of final disbursement. Lenders may not collect any fees from the applicant. The SBA will pay lenders fees for processing PPP loans to first-time borrowers in the following amounts:

·       5% for loans of more than $350,000;

·       3% for loans of more than $350,000 and less than $2,000,000; and

·       1% for loans of at least $2,000,000.

Lenders working with second draw borrowers will be reimbursed by the SBA under a separate fee schedule as follows:

·       the lesser of 50% of the principal amount of the loan or $2,000 for loans up to $50,000;

·       5% for loans of more than $50,000 and less than $350,000; and

·       3% for loans above $350,000.

Lender Considerations under the PPP

Benefits to Existing Borrowers

Community lending institutions typically loan to small businesses and individuals in their communities, which are among the businesses that the PPP seeks to target for COVID-19 relief. Participating in the PPP could be a key tool in maintaining the credit quality of a lender’s existing portfolio.

Community Benefits

The PPP is intended to help sustain smaller businesses by providing cash to pay payroll costs and rent, with benefits to the business, its employees, property owners, and their lenders. Similar benefits from extending PPP loans to existing borrowers could occur for loans secured by accounts receivable or other business assets. Additionally, by providing PPP loans an institution demonstrates its commitment to work with borrowers and help strengthen lending relationships.

Responsibilities for Lenders

Reviews

The SBA has indicated that it has the authority to review any PPP loan it deems necessary. It also stated reviews would focus on Borrower eligibility, loan amount, use of proceeds, and forgiveness amount. Further, the SBA indicated the loans could be of any size and it could undertake the review at any time at its discretion. If after the review the SBA has further questions, the SBA will obtain additional information either directly from the borrower or by using the lender as an intermediary between. Lenders should be prepared for the possibility of the SBA contacting them with questions and requests related to individual loans. Policies and procedures should be established to help ensure a uniform approach to the SBA requests, interactions with borrowers, and information provided.

If the SBA determines the borrower is either ineligible for the PPP loan, the loan amount, or forgiveness amount claimed, the SBA will direct the lender to deny the loan forgiveness application in whole or in part, as appropriate. The SBA may also seek repayment of the loan or pursue other remedies.

Notifying the Borrower

If the lender receives notice that the SBA is reviewing a PPP loan the lender must notify the borrower within 5 business days of receipt of notice. The Lender must submit the following information to the SBA within 5 days of receipt of such notice:

·       Borrower Application (SBA Form 2483);

·       Borrower Forgiveness Application (SBA Form 3508, Form 3508EZ or Lender’s equivalent form) and supporting documentation;

·       A signed and certified transcript of account (it is unclear exactly what the SBA means by this);

·       A copy of the executed PPP Promissory Note; and

·       Any other documents requested by the SBA.

Documentation

Both borrowers and lenders are required to comply with applicable SBA requirements for records retention.

Loan Forgiveness: The Lenders Role

Although providing an accurate calculation of the loan amount is the borrower’s responsibility, lenders are expected to perform a good faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning average monthly payroll cost. The lender should work with the borrower to remedy any calculation errors by the borrower or any lack of documentation. However, the lender may rely on the borrower’s representations and does not need to independently verify information provided by the borrower with third parties.

A lender must review the borrower’s forgiveness application and submit a decision to the SBA within 60 days of receipt of a complete loan forgiveness form from the borrower. Subject to the SBA’s review of a loan and application, the SBA will remit the forgiveness amount to the lender, plus any interest accrued through the date of payment, no later than 90 days after the lender provides the SBA with its decision.

If the SBA determines that the borrower is not eligible for forgiveness the lender will not receive its processing fee. Additionally, if within 1 year of the PPP Loan being disbursed, the SBA reviews a PPP Loan and determines that the borrower was ineligible for a PPP Loan from the outset, based on the CARES Act or applicable rules or guidance available at the time of the borrower’s initial loan application, then the SBA will seek to clawback the processing fee paid to the lender. However, a determination of borrower ineligibility and clawback of processing fee will not impact the SBA’s guaranty of the loan so long as the lender complied with its underwriting responsibilities.

To the extent that a lender relies on borrower’s certification or documentation, no enforcement action may be taken against the lender and the lender shall not be subject to any penalties relating to loan origination or forgiveness, as long as the lender acts in good faith and complies with all federal, state, local and other statutory and regulatory requirements applicable to the lender with respect to the loan.

Policies and Procedures for Lenders

The lender’s role involves more than accepting forms from the borrower, and they should be prepared for the SBA’s review of loans. Lenders should set policies and procedures for consistently collecting and storing accurate and complete documentation from borrowers. This will help them verify that they are submitting consistent documents to the SBA during the review process.

It is essential that the lender fulfill its obligations under PPP regulations for the origination of the loan and processing of forgiveness. Lenders should be proactive to make sure they have sufficient documentation available from the loan origination and to educate borrowers of expectations for the documentation needed in the forgiveness process.

Implementation of the PPP

Use of Online Portals and Electronic Forms

Lenders may use their own online systems and a form they establish that asks for the same information (using the same language) as the Borrower Application Form. Lenders are still required to send the data to SBA using the SBA’s interface.

Accepting Signatures from Authorized Individuals

A lender may accept signatures from an individual who is authorized to sign on behalf of a borrower. However, only an authorized representative of the business seeking a loan may sign on behalf of the business. An individual’s signature as an “Authorized Representative of Applicant” is a representation to the lender and to the U.S. government that the signer is authorized to make the certifications, including with respect to the applicant and each owner of 20% or more of the applicant’s equity, contained in the Borrower Application Form. Lenders may rely on that representation and accept a single individual’s signature on that basis.

Authorization Documents to Issue PPP Loans

A lender does not need a separate SBA Authorization for SBA to guarantee a PPP loan. However, lenders must have executed SBA Form 2484 (the Lender Application Form for the Paycheck Protection Program) to issue PPP loans and receive a loan number for each originated PPP loan. Lenders may include in their promissory notes for PPP loans any terms and conditions, including relating to amortization and disclosure, that are not inconsistent with Sections 1102 and 1106 of the CARES Act, the PPP Interim Final Rules and guidance, and SBA Form 2484.

Scanned Copies and E-signatures

A lender may use scanned copies of documents, E-signatures, or E-consents permitted under the E-sign Act. All PPP lenders may accept scanned copies of signed loan applications and documents containing the information and certifications required by SBA Form 2483 and the promissory note used for the PPP loan. Additionally, lenders may also accept any form of E-consent or E-signature that complies with the requirements of the Electronic Signatures in Global and National Commerce Act (P.L. 106-229).