SBA Loan Review Procedures and Related Borrower and Lender Responsibilities

May 26, 2020 | COVID-19 Response, Firm Updates

SBA Reviews of Individual PPP Loans

  • The SBA may review any PPP loan, as they deem appropriate
    • SBA may review whether a borrower is eligible for the PPP loan based on provisions of the CARES Act, the rules and guidance available at the time of the borrower’s PPP loan application, and the term of the borrower’s loan application
    • Whether the borrower calculated the loan amount correctly and used loan proceeds for the allowable uses specified in the CARES Act
    • Whether the borrower is entitled to loan forgiveness in the amount claimed on the borrower’s Loan Forgiveness Application (SBA Form 3508, SBA Form 3508EZ or lender’s equivalent)
  • May undertake a review at any time in the SBA’s discretion
  • The borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full and permits authorized representatives of SBA (including the Office of Inspector General) to access such files upon request
  • The borrower will have the opportunity to respond to the SBA’s questions in a review. SBA will require the lender to contact the borrower in writing to request additional information although the SBA may request information directly from the borrower.
  • Failure to respond to SBA’s inquiry may result in a determination that the borrower was ineligible for a PPP loan or ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower.
  • If the SBA determines that a borrower is ineligible for a PPP loan the loan cannot be forgiven. SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies.

The Loan Forgiveness Process for Lenders

  • The lender will review the following for PPP Loan Forgiveness Applications:
    • For SBA Form 3508EZ:
      • Confirm receipt of the borrower certifications contained int eh SBA Form 3508EZ or lender’s equivalent form.
      • Confirm receipt of the documentation borrowers must submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the SBA Form 3508EZ or lender’s equivalent form.
      • Confirm the borrower’s calculation on the borrower’s SBA Form 3508 EZ or lender’s equivalent form, including the dollar amount of payroll costs, business mortgage interest payments, business rent or lease payments, and business utility payments claimed on lines 1, 2, 3, and 4 of the SBA Form 3508 EZ or lender’s equivalent form, by reviewing the documentation submitted with the SBA Form 3508EZ or lender’s equivalent form.
      • Confirm that the borrower made the calculation on line 7 of the SBA Form 3508EZ  or lender’s equivalent form correctly, by dividing the borrower’s eligible payroll costs claimed on line 1 by .60.
    • For SBA Form 3508:
      • Confirm receipt of the borrower certifications contained int eh SBA Form 3508 or lender’s equivalent form.
      • Confirm receipt of the documentation borrowers must submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the SBA Form 3508 or lender’s equivalent form.
      • Confirm the borrower’s calculations on the borrower’s SBA Form 3508 or lender’s equivalent form, including the dollar amount of
        • Cash compensation, non-cash compensation, and compensation to owners claimed on lines 1, 4, 6, 7, 8, and 9 on PPP Schedule A
        • Business mortgage interest payments, business rent or lease payments, and business utility payments claimed on lines 2, 3, and 4 on the PPP Loan Forgiveness Form, by reviewing the documentation submitted with the SBA Form 3508 or lender’s equivalent.
      • Confirm the borrower made the calculation on line 10 of the SBA Form 3508 or lender’s equivalent correctly, by dividing the borrower’s eligible payroll costs claimed on line 1 by .6
    • Lenders are expected to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness
  • If the lender identifies errors in the borrower’s calculations or material lack of substantiation in the borrower’s supporting documentation, the lender should work with the borrower to remedy the issue
  • A lender must issue a decision to SBA on a loan forgiveness application no later than 60 days after receipt of a complete loan forgiveness application from the borrower
  • If the lender determines that the borrower is entitled to forgiveness for some or all of the loan the lender will submit that decision along with request for payment from SBA
  • SBA will remit the appropriate loan forgiveness amount plus interest through the date of payment to the lender no later than 90 days after the lender issues its decision to SBA. This is subject to any SBA review of the loan or loan application once submitted.

Lender Fees

  • The lender is not eligible for a processing fee if SBA determines that a borrower is ineligible.
  • There is a one-year clawback on lender processing fees if SBA determines that a borrower is ineligible.
  • If a lender has not fulfilled its obligations under PPP regulations, the lender processing fee is subject to claw back and SBA may determine that the loan is not eligible for a guaranty.

You can read the SBA’s official guidance document on the Treasury’s website here.

You can read the additional guidance document on the Treasury’s website here.

If you have any questions, please reach out to your personal Sciarabba Walker contact or email us at info@swcllp.com.