Best Practices: Recent SBA Procedural Notices for SBA Lenders

Recently SBA has issued two procedural notices related to PPP and certain 7(a) loans approved under the CARES Act, as amended by Section 325 of the Economic Aid Act, and the Second Round Section 1112 Payments that are authorized for the 7(a), 504, and Microloan Programs.

Partial Loan Forgiveness SBA Reviews

Procedural Notice 5000-827666 issued on January 27, 2022 sets out a process for an SBA review of a PPP lender’s partial forgiveness decision.  Previously, PPP borrowers did not have the option to request an SBA review of its lender’s partial forgiveness decision.  Now, they may request an SBA review if they disagree with the decision, or if the lender required them to revise their forgiveness application for a lesser amount than what borrower believed they were eligible.

Under the new process, when the lender receives the notice of partial forgiveness remittance from SBA (“Payment Notice”), the lender has five (5) business days to inform the borrower of such Payment Notice. The notice to the borrower should include the following:  (i) a copy of the Payment Notice, (ii) the reason for lender’s partial forgiveness decision and (iii) a statement that the borrower has thirty (30) days from receipt of the notice to request an SBA review of the lender’s partial forgiveness decision.  Lender must notify SBA within five (5) days of receipt of a borrower’s timely request for an SBA review.  Such notice to SBA must be submitted through the PPP Platform and include a copy of the lender’s notice to borrower (including the reason for partial forgiveness).

Lenders had thirty (30) days from the date of the Procedural Notice to inform all PPP borrowers who did not agree with the partial forgiveness decision, of their right to request an SBA review.  SBA will determine whether or not to conduct an SBA review in its sole discretion, and will notify the lender (and the borrower through the lender), if it chooses to conduct such a review.

Borrowers should be informed that there is no deferral of payments on the remaining balance of the PPP loan while waiting for SBA to either accept or complete a forgiveness review.   Further, borrowers should be informed that SBA will do a complete review of the PPP forgiveness application, and may reach a different decision than originally reached by lender, including that the loan forgiveness amount is more or less than what lender approved, or that the borrower was not eligible for loan forgiveness.

Upon receipt of the final SBA loan review decision, the lender must notify the borrower of SBA’s decision and may need to remit to SBA the excess amount of any previously received forgiveness payment.

Increases to 7(a) loans approved on or before December 27, 2020

On December 6, 2021, the SBA said it would not approve any increases in the principal loan amount for any 7(a) loans that were approved on or before September 30, 2021.  Under the new Procedural Notice 5000-829036 issued February 16, 2022, the SBA laid out the conditions under which a lender may increase a 7(a) loan that was original approved on or before December 27, 2020.

Lenders may request an increase provided, that either the loan (i) has received all Section 1112 payments for which it was eligible for, or (ii) the loan was not eligible to receive any Section 1112 payments. Lenders must certify to SBA that the borrower falls under one of these categories.  For delegated lenders the certification is submitted to SBA with the loan increase request.  For loans approved under lender’s delegated authority, the loan increase amount is submitted through E-Tran, and lender must retain in its file the relevant certification. SBA may review the documentation supporting the increase when conducting lender oversight activities and at time of guaranty purchase.

In accordance with 7(a) program requirements, any loan increase approved in FY2022 that results in a gross loan amount in excess of $350,000 will be charged the origination and servicing fee in effect at the time the original loan was approved.

For more guidance on PPP loans, 7(a) loans, servicing and liquidation, please reach out to Kim Rayer at krayer@starfieldsmith.com.