May 26, 2020

PPP loan forgiveness rules for lenders, borrowers released

MoneyThe Small Business Administration (SBA) issued two interim final rules (IFRs) providing paycheck protection program (PPP) borrowers and lenders with additional information on loan forgiveness and the loan review process. The agency previously released the loan forgiveness application for borrowers; NAFCU has consistently sought additional guidance for lenders on the issue.

Key things for credit unions to know from the IFR on loan forgiveness:

  • Application: In order to receive loan forgiveness, borrowers must complete the loan forgiveness application (Form 3508) and submit it to their lender. Lenders then have 60 days from receipt of a complete loan forgiveness application to issue a decision to the SBA; lenders are also responsible for notifying borrowers of loan forgiveness amounts. The SBA will remit payment to the lender no later than 90 days after the lender makes a decision. If only a portion of the loan is forgiven and a balance remains, the borrower must repay on or before the two year maturity.
  • Payroll costs: Payroll costs must be incurred during the 8-week covered period. Borrowers may seek forgiveness for payroll costs for the 8 weeks beginning on either the date of the disbursement of the borrower's PPP loan (the start of the covered period), or on the first day of the first payroll cycle in the covered period (alternative payroll covered period). Payroll costs are considered paid on the day that paychecks are distributed or an ACH is originated. For employees who are not performing work but are still on the borrower's payroll, payroll costs are incurred based on the schedule established by the borrower. Payroll costs include salaries, wages, or commission payments to furloughed employees, and hazard pay. Loan forgiveness will not be reduced if the borrower laid-off or reduced hours, offered to re-hire an employee and the employee declined.
  • Non-payroll costs: A non-payroll cost is eligible for forgiveness if it was paid during the covered period, or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period. Advance payments of mortgage interest are not eligible for loan forgiveness.

Additional information on reductions to the loan forgiveness amount and documentation requirements is available in the IFR.

The second IFR details the SBA's process for reviewing PPP loan applications and loan forgiveness applications, with specific information for lenders on the loan forgiveness process.

Of note, the IFR confirms that calculations are the responsibility of the borrower: "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." Lenders must also:

  • maintain records with the requirements of their regulators and in compliance with 13 CFR 120.461;
  • respond to SBA requests to review a loan otherwise, if the lender does not respond to the inquiry, this will 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;
  • confirm receipt of the borrower certifications contained in the loan forgiveness application form;
  • confirm receipt of the documentation borrowers must submit to aid in verifying payroll and non-payroll costs;
  • confirm the borrower's calculations by reviewing the documentation submitted with the application; and
  • confirm the borrower made the calculation on Line 10 of the application.

In addition, if the SBA reviews a loan and determines that a borrower is ineligible for the program, the lender is not entitled to reimbursement of processing fees. Read the full IFR here.

NAFCU will continue working closely with the SBA and Treasury to obtain more guidance, and with Congress as lawmakers consider changes to the program to make it easier for borrowers to use funds. Access NAFCU's PPP FAQs here; more information is also available on the SBA's and Treasury's websites.