Reed Smith Client Alerts

The SBA has recently issued guidance regarding a lender’s obligations in processing loan forgiveness applications from borrowers. This guidance clarifies that a lender is required to perform a good-faith review of a borrower’s application and the calculations contained therein. The guidance also requires a lender to work with a borrower if it identifies errors or deficiencies in the borrower’s application.
People meeting and reviewing business documents

Recent Guidance from the SBA and the Department of the Treasury

As the Paycheck Protection Program (PPP) enters its eighth week, lenders should expect to begin receiving borrowers’ applications for loan forgiveness. PPP loans are fully forgivable to the extent the loan proceeds were used for payroll expenses, business mortgage interest payments, business rental and lease payments, and business utilities payments, as long as at least 75 percent of the loan is used for payroll expenses.1 On May 15, 2020, the Small Business Administration (SBA) issued a loan forgiveness application form, and on May 22, 2020, the SBA and the Department of the Treasury issued two new Interim Final Rules (“IFR”) that provide guidance for lenders about processing loan forgiveness applications.

Loan Forgiveness Application Procedure

The loan forgiveness application requires a borrower to calculate the total amount of the loan to be forgiven, including payroll costs, business mortgage interest payments, business rent or lease payments for real or personal property, and business utility payments that were incurred during the eight-week period after receipt of the loan. The borrower must also provide documentation supporting these forgivable payroll and non-payroll expenditures and certify (i) that its calculations and its documentation are true and accurate; (ii) that the loan was used for forgivable purposes; and (iii) that the borrower understands that the SBA may ask for additional documentation if necessary.