Best Practices: PPP Loan Review Process

Under the CARES Act, SBA has the authority to conduct a review of any loan originated under the Paycheck Protection Program (“PPP”) at its discretion at any time.  SBA may review a PPP loan for (i) Borrower eligibility, (ii) PPP loan amounts and use of proceeds and (iii) PPP loan forgiveness amounts (“Loan Review”).  SBA has issued guidance regarding Loan Reviews in its Interim Final Rule (IFR) #15 issued May 22, 2020, IFR #20 issued June 26, 2020, its SBA Procedural Notice 5000-20038 dated July 23, 2020, certain FAQs, its Forgiveness Portal and certain SBA presentations.  

SBA notifies Lenders that it is conducting a Loan Review by sending an Official Notice of Review (“Notice”) through SBA’s Forgiveness Platform.  Lenders must notify the Borrower of the Loan Review within five (5) business days of receipt of the Notice from SBA.

The Notice will set forth the documentation that must be electronically delivered to SBA.  The Lender has five (5) business days from receipt of the Notice to upload any requested documentation that it has in its possession into the Forgiveness Platform.   All Notices require that the following PPP loan documentation should be delivered by Lender electronically through the Forgiveness Platform:

1. The Borrower Application Form (SBA Form 2483 or Lender’s equivalent form) and all supporting documentation provided by the Borrower.
2. The Borrower’s Loan Forgiveness Application (SBA Form 3508, 3508EZ, 3508S or Lender’s equivalent form), and all supporting documentation required to be submitted by the Borrower to the Lender with the Borrower’s Loan Forgiveness Application.
3. A signed and certified transcript of account.
4. A copy of the executed note evidencing the PPP loan.
5. Any other documents related to the loan requested by SBA.

The Notice also provides that the Borrower has ten (10) business days from notification of the Loan Review to deliver to Lender the supporting documentation that it was required to retain pursuant to the instructions for the Borrower’s PPP Loan Application and applicable PPP Loan Forgiveness Application.  For example, if a Borrower completed a SBA Form 3508EZ it may be required to provide its payroll records for each employee for the Covered Period.  The SBA may contact Borrowers directly, or through Lender, to request additional information.  Failure to respond to such requests may impair the Borrower’s ability to obtain PPP loan forgiveness.  

If a Borrower submits a PPP Loan Forgiveness Application while the SBA is conducting a Loan Review, the Lender must deny the Loan forgiveness application without prejudice (meaning the Borrower may be able to re-submit the PPP Loan Forgiveness Application after the Loan Review is completed).  SBA will notify the Lender through the Forgiveness Platform once its Loan Review is completed.  If the Lender has not processed the Borrower’s PPP Loan Forgiveness Application, SBA will instruct Lender whether or not the Lender may continue processing the application.  If the Lender submitted its forgiveness decision for Borrower’s PPP loan to the Forgiveness Platform prior to the Loan Review, SBA will notify the Lender whether the PPP loan is forgiven in full or part, or denied.  If a PPP loan is deemed ineligible or denied forgiveness by SBA, Borrower may appeal to the SBA’s Office of Hearings and Appeals.

At this time, it’s not clear how many Loan Reviews will be conducted by SBA, or the amount of time it will take for SBA to complete its Loan Reviews. While SBA has established guidance on what it requires from Lenders in responding to Loan Reviews, it’s still an additional servicing burden on Lenders that may not have been anticipated by many lenders when PPP was rolled out in the spring.  

If you have any questions regarding the PPP Loan Review Process, please contact Starfield & Smith at 215-542-7070.