October 9, 2020
Barclay Damon Update re: PPP loans and loan review process:
COVID-19: SBA Releases Additional Guidance on PPP Loan Forgiveness for Borrowers of Loans $50,000 or Less and for Lenders of All Sizes
On October 9, 2020, the Small Business Administration (SBA) published an interim final rule further revising loan forgiveness for borrowers who received Paycheck Protection Program (PPP) loans and loan review procedures for lenders. The new rule intends to simplify the forgiveness and loan review process for PPP loans of $50,000 or less. Additionally, it simplifies lender responsibilities with respect to the review of documentation of eligible costs for forgiveness in excess of a borrower’s PPP loan amount for PPP loans of all sizes.
This interim final rule announced the SBA will issue an alternative loan forgiveness application (SBA Form 3508S), which will be available for use by borrowers who received PPP loans with total amounts of $50,000 or less. Borrowers cannot use SBA Form 3508S if, together with their affiliates, they received loans totaling $2 million or more. Eligible borrowers using SBA Form 3508S will be exempt from any reduction in loan forgiveness based on reductions in full-time equivalent employees or reductions in employee salaries or wages that would otherwise apply.
As a result of the issuance of SBA Form 3508S, loan review procedures for lenders have also been revised. When a borrower submits the new SBA Form 3508S loan forgiveness application, the lender must confirm receipt of the borrower’s certifications as well as receipt of the documentation the borrower must submit to aid in verifying payroll and non-payroll costs.
Providing an accurate calculation of the loan forgiveness amount remains the responsibility of the borrower. The borrower must also submit all required documentation to their lender in order to receive forgiveness. However, the lender is not required to independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests it accurately verified the payments for eligible costs.
Finally, this new rule re-confirms that a borrower may not receive forgiveness in an amount that exceeds the principal amount of their PPP loan.