Best Practices: Updated Lender Servicing Responsibilities for PPP Loans

On October 5, 2022, the SBA released Procedural Notice 5000-835955 (Extension and Revision of SBA Guidance on Guaranty Purchases and Lender Servicing Responsibilities for PPP Loans) or the “Notice.” The Notice both extends and updates the guidance which was contained in SBA Procedural Notice 5000-812316, “SBA Guaranty Purchases and Lender Servicing Responsibilities for PPP Loans” (“First PPP Guaranty Purchase Notice”). Some of the key provisions from the Notice are set forth in this article.

Lenders are responsible for servicing their PPP Loans. Lenders are expected to work with their Borrowers to seek forgiveness at the end of the loan forgiveness period and, if the Borrower’s loan is not forgiven, the Lender should collect loan payments, or request guaranty purchase or charge off in the case of default.

Many questions from Lenders center concern whether they may change the terms of the loan. The answer, with limited exceptions, is a resounding “no.”

Can Lenders extend the maturity of the PPP Loan? 

Section 2 of the PPP Flexibility Act of 2020 (P.L. 116-142) (“Flexibility Act”) required a five-year maturity for PPP loans made on or after June 5, 2020. For PPP loans made before that date, the Flexibility Act allowed Lenders and Borrowers to mutually agree to extend the maturity of the PPP loan from two years to five years. Additionally, assuming that the extension is granted before the SBA loan guaranty expires, the maturity date of a PPP loan may be extended for up to 10 years beyond its original maturity date. Such an extension would require that the parties agree in writing, and that the extension help with the orderly repayment of the loan.

A critical consideration for Lenders is that they must request that the SBA honor its guaranty within 180 days from this maturity date unless it is conducting liquidation. If a Lender is conducting liquidation on a loan that has matured, it must request guaranty purchase within 180 days after completing the liquidation.  The SBA considers a pending SBA loan review and a pending forgiveness payment request as ongoing liquidation actions.  Therefore, if a PPP loan matures while a Lender requests a forgiveness payment or while a loan review decision is pending with SBA (including a borrower appeal pending with the Office of Hearing and Appeals (OHA), the Lender will have 180 days from the date of the SBA forgiveness payment or final SBA loan review decision (or OHA final decision, if applicable) to request that the SBA honor the guaranty.

May Lenders require collateral or personal guarantees when extending the maturity of a PPP loan or making other loan modifications?

No. Lenders may not take collateral or require personal guarantees when extending the maturity date.

Can Lenders modify the PPP Loan’s interest rate?

No. Per 85 FR 20811, the interest rate for PPP loans is one (1%) percent, and Lenders cannot charge a higher rate. Period. Lenders are also not permitted to charge a default interest rate on their PPP loans.

Other topics of interest included in the Notice are SBA’s loan monitoring requirements for PPP loans, and how Lenders should handle Borrower payments received after SBA has purchased the guaranty and charged off the PPP loan.

If you have any questions, please feel free to email me at tdlauro@starfieldsmith.com.