Best Practices: PPP Loan Forgiveness — Lender Risks of Losing Processing Fees

On May 23, 2020, the SBA released two Interim Final Rules (“IFRs”) on loan forgiveness and its loan review procedures in order to inform borrowers and lenders of the SBA’s process for reviewing PPP loan forgiveness applications.  The IFRs state, in part, that if the SBA reviews a PPP loan forgiveness application and determines that the Borrower was ineligible at the time of application, the Borrower’s loan will not be forgiven.  For the Lender, this means that it will not be entitled to any of the processing fees it earned on the PPP loan.  The IFRs also include a one year clawback provision from the date of loan disbursement that can be used if a Lender has already received processing fees and the Borrower is subsequently deemed ineligible.   

The Borrower is still responsible for and expected to provide “an accurate calculation of the loan forgiveness amount” and attest to the accuracy of its reported information including calculations on the Loan Forgiveness Application.  Nevertheless, 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 Lenders fail to do so, they again risk their processing fee, and potentially the loan guaranty being honored for the unforgiven portion of the PPP loan.

The IFRs also point out that “SBA’s determination of Borrower eligibility will have no effect on SBA’s guaranty of the loan if the lender has complied with its obligations under Section III.3.b of the First Interim Final Rule and the document collection and retention requirements described in the lender application form (SBA Form 2484).”  Therefore, it is incumbent upon each lender to comply with its responsibilities under the CARES Act, the FAQs, IFRs, and procedural notices.  The challenge, of course, is that the guidance has been provided in bits and pieces, requiring lenders to stay abreast of the latest requirements.  

While the “guidance” continues to evolve on PPP loan forgiveness and a guaranty purchase process, lenders should continue to make their best efforts to familiarize themselves with all program requirements.  This will help to ensure that PPP loans will be issued to eligible small business applicants; that the loans will ultimately be forgiven; that the 100% guaranty will be honored; and that lenders will receive any processing fees they have earned and are anticipating. 

For assistance with PPP and SBA lending matters, contact the attorneys at Starfield & Smith, PC at 215.542.7070 or visit us at www.starfieldsmith.com.