Best Practices: Lender’s Obligations during PPP Forgiveness

Now that the PPP loan program has closed to new PPP loan originations, lenders may shift their full attention back to the forgiveness process. It is important that lenders continue to keep up with the latest guidance to ensure that they are processing forgiveness applications properly. 

Lenders should start by making sure they are aware of lender’s obligations during a forgiveness application review. Regardless of which forgiveness application is used by a Borrower, the lender must (i) confirm receipt of borrower’s required certifications, (ii) confirm receipt of the documentation that borrower must submit to verify use of the PPP proceeds, (iii) confirm borrower’s calculations, including calculations of owner compensation and non-payroll expenses, and (iv) confirm calculation of the payroll requirement. See IFR on Loan Forgiveness.   In order to ensure that all required documentation has been submitted, lenders should reference the required documentation outlined in the instructions to each forgiveness forms as there are differences between the requirements set forth on the Form 3508, Form 3508EZ and Form 3508S.

Upon receipt of a completed forgiveness application, a lender has 60 days to review and process the application. Once the lender has completed its review, it must submit its determination to SBA, who in turn, will have 90 days to respond. SBA will send its response on forgiveness to the lender and the lender is required to notify the borrower of the final forgiveness determination. 

At this time, lenders are permitted to process loan forgiveness applications for either a first draw PPP loan or a second draw PPP loan. Note that for a second draw PPP loan in excess of $150,000.00, the borrower must submit its loan forgiveness application for the first draw loan either before or simultaneously with the application for the second draw loan. This is a requirement, even if the amount of the forgiveness for the first draw loan is $0. 

A borrower may submit a forgiveness application at any point in time prior to the maturity of the loan, however, if a forgiveness application has not been submitted within 10 months following the end of the covered period, payments on the loan must commence. It is the lender’s responsibility to notify the borrower of the date that the first payment is due and to notify SBA on its 1502 report that the loan is no longer in deferral. 

Occasionally lenders have found that upon submitting a forgiveness determination, either new information is provided or corrections are discovered that would change the forgiveness amount. Until now there has not been a formal process in place that would permit a lender to amend the amount of forgiveness after submitting its decision to SBA. While SBA is still working on the process, they have announced via email blasts that, for now, lenders may send a message to SBA through the platform in order to correct forgiveness amounts. Lenders are instructed to use the message type “Payment or Reconciliation Questions” and include the SBA loan number, the amount of the correction being requested and the reason that the correction is necessary. Additional guidance will be released once a formal process is established. SBA intends to begin processing corrections in July. 

For questions regarding PPP forgiveness, contact the attorneys at Starfield & Smith at 215-542-7070.