The Small Business Administration (“SBA”) issued two interim final rules relating to the loan forgiveness process under the Paycheck Protection Program (“Program”). The first interim final rule provides guidance to the loan forgiveness application and the second rule outlines the SBA review process and lenders’ responsibilities in processing loan forgiveness applications.

The new interim final rules set forth the process for loan forgiveness. A borrower must submit the Loan Forgiveness Application on SBA Form 3508 (or a lender equivalent form) to its lender. Borrowers are responsible for calculating the amount of the loan that is eligible for forgiveness. However, lenders are required to perform “a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents.” Lenders may rely on the borrower’s representations and do not need to independently verify the information as long as the borrower provides supporting documentation and certifies that it accurately verified the payments for eligible costs.

The lender must make a decision on whether the borrower qualifies for loan forgiveness within 60 days of receiving a complete application from the Borrower. The lender may approve the application (in whole or in part); deny the application; or, if directed by the SBA, deny the application without prejudice due to a pending SBA review of the loan.

If a lender determines the borrower is eligible for partial or full forgiveness, it must notify the borrower of the forgiveness amount and notify the SBA. Along with notification to the SBA, the lender must include (1) the PPP Loan Forgiveness Calculation Form; (2) PPP Schedule A; and (3) the optional PPP Borrower Demographic Information Form if such form was submitted to the lender. The lender must confirm that the information provided by the lender 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 of the Program.

If a lender determines that a borrower is not entitled to loan forgiveness, it must include the three forms listed above and the reason for the denial. The lender must also notify the borrower of such denial. A borrower may request that the SBA review the lender’s decision within thirty (30) days of such notice by lender.

Subject to any review of the loan or loan application, the SBA will issue payment of the forgiveness amount plus any interest accrued through the date of payment to lender, within 90 days.

The additional rules also clarify the process for SBA loan review. The SBA may review any loan at any time in its discretion. The SBA will notify the lender regarding any loan it is reviewing and the lender must notify the borrower within five (5) days of receipt of such notice from the SBA.

If the SBA determines that a borrower was not eligible for a loan, a lender will not be entitled to processing fees in connection with that loan. There is also a “claw-back” provision. Any processing fees received by lender in connection with a loan that is subsequently ruled ineligible by the SBA within one year after a loan was disbursed, must be repaid by the lender. Finally, the rule clarifies that if a lender does not satisfy the requirements set forth in the interim final rules or the document collection and retention requirements described in the SBA Form 2484 (the lender application form), the lender must repay the processing fee and the SBA may determine that the loan is not eligible for a guaranty. The rules explain that federally regulated lenders must comply with the requirements of their federal regulator for record retention and SBA supervised lenders must comply with 13 CFR 120.461, which requires retaining documents relating to SBA loans for a period of six years.

The full text of the rules can be found here:
• PPP-SBA Loan Review Procedures and Related Borrower and Lender Responsibilities
• PPP Loan Forgiveness

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