On February 10, 2021 SBA issued Procedural Notice 5000-20092 regarding Revised SBA Paycheck Protection Platform Procedures for Addressing Hold Codes on First Draw PPP Loans and Compliance Check Error Messages on First Draw PPP Loans and Second Draw PPP Loans, which updates the previous SBA Procedural Notice 5000-20083, issued January 26, 2021.
During the first round of PPP in 2020, SBA verified certain eligibility requirements for PPP Loan borrowers after funding by comparing borrower’s information “…against publicly available information and applied eligibility and fraud detection rules to identify anomalies and/or attributes that may indicate noncompliance with eligibility requirements, fraud or abuse.” Any identified anomaly or inconsistency created a Hold Code which would be discovered upon processing the borrower’s forgiveness application or its 2021 Second Draw PPP Loan application, if any. It’s possible that more than one Hold Code could be identified for a borrower.
SBA’s new PPP platform which is used for processing 2021 First and Second Draw PPP Loan applications, as well as PPP Loan forgiveness applications, conducts an automatic screening of applicants against publicly available information and the Department of Treasury Do Not Pay lists to verify certain eligibility representations made by the applicant prior to funding. A 2020 First Draw PPP Loan application or forgiveness application screening issue is identified by a Hold Code. Any identified issues discovered while processing a 2021 First or Second Draw PPP Loan application creates a Compliance Check Error Message. Whether identified as a Compliance Check Error or a Hold Code, or possibly both, the result is that the current PPP Loan application is placed in research status by SBA. The lender is unable to continue processing the application until all Compliance Check Errors/Hold Codes are cleared.
SBA has given Lenders the ability to clear certain Compliance Check Errors/Hold Codes under its delegated authority. Specifically, any Compliance Check Error/ Hold Code listed on Table 1 of the Procedural Notice may be resolved through a Lender certification process. The Lender certifies to SBA through the platform that it has collected, reviewed and retained in its file sufficient documentation and certifications from the borrower/applicant in order to clear every Hold Code/Compliance Check Error. The Lender must submit the collected documentation to SBA at the time it submits the Borrower’s PPP Loan forgiveness application or it submits a guaranty purchase request for the applicable PPP Loan. If the Lender is unable or unwilling to make the Lender certifications, the PPP Loan application should be withdrawn from the platform.
For Compliance Check Errors/ Hold Codes listed on Table 2 of the Procedural Notice, the Lender must submit information and documentation through the platform for SBA review and approval. If Lender receives a “Duplicate Loans and DUNS issues” message, it must work with the applicant/borrower to confirm that they have not applied for and/or received more than one PPP Loan. Information to clear this error message must be submitted to SBA through the platform for review and approval. Finally, if Lender encounters a message, “Internal SBA Hold – Details Not Publicly Available,” Lender should wait for instructions from SBA through the platform on next steps.
SBA’s revised policy allowing Lender certification to clear Hold Codes/Compliance Check Errors helps to streamline PPP loan and forgiveness processing. However, it should not be overlooked that this solution shifts the responsibility to Lenders to verify PPP eligibility, which seems contrary to the intention of the CARES Act, which was to rely upon the Borrower’s certification. Lenders’ concern that they will incorrectly or incompletely clear Hold Codes/Compliance Check Errors is further enhanced by the limited information provided on the platform about the exact reason for, or source of, the identified issue. In many cases, Lenders are forced to spend additional time and incur additional costs in an attempt to prove the negative, confirming that they cannot find evidence of a filed bankruptcy or criminal record for the applicant or its owners. While the goal of reducing fraud and ensuring that PPP loans are only going to eligible borrowers is laudable, PPP Lenders should be aware of the potential liability associated with an insufficient process for clearing Hold Codes and Compliance Check Errors.
For more information, contact Starfield & Smith at 215-542-7070.