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SBA Releases Additional PPP Loan Review Guidance

May 27, 2020

On May 22, 2020, the Small Business Administration (SBA), in consultation with the U.S. Department of Treasury, published an interim final rule (the Review Guidance) to supplement previous Paycheck Protection Program (PPP) loan forgiveness guidance. The Review Guidance is intended to establish the standards by which the SBA will investigate whether a loan met program requirements and the circumstances under which it will be released from liability on a guarantee for such a loan.

Loan Review Process

What Loans Will the SBA Review?

The SBA has previously issued guidance (See Question 39) that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.

What Information Will the SBA Review?

In the Review Guidance, the SBA has stated that it is authorized to review the following information:

  • Borrower eligibility – whether the borrower was eligible for the PPP loan based on the provisions of the Coronavirus Aid, Relief, and Economic Security Act, the rules and guidance available at the time of the borrower’s PPP loan application, and the terms of the borrower’s loan application.
  • Loan Amounts and Use of Proceeds – whether a borrower calculated the loan amount correctly and used loan proceeds for the allowable uses specified in the CARES Act.
  • Loan Forgiveness Amounts – whether a borrower is entitled to loan forgiveness in the amount claimed on the borrower’s Loan Forgiveness Application (SBA Form 3508 or lender’s equivalent form).

When Will the SBA Review a Loan?

For a PPP loan of any size, the SBA may undertake a review at any time in the SBA’s discretion.

Per the Loan Forgiveness Application, the borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of the SBA, including representatives of its Office of Inspector General, to access such files upon request. Additionally, lenders are required to comply with applicable SBA record retention regulations.

Will Borrowers Have an Opportunity to Respond to SBA’s Questions?

Yes, the SBA will require the lender to contact the borrower in writing to request additional information. The SBA may also request information directly from the borrower. The lender will provide any additional information provided to it by the borrower to the SBA. The SBA will consider all information provided by the borrower in response to such an inquiry.

Borrowers should be advised that failure to respond to the SBA’s inquiry may result in a determination that the borrower was ineligible for a PPP loan or ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower.

Can PPP Loans Made to Ineligible Borrowers be Forgiven?

No. If the SBA determines that a borrower is ineligible for the PPP loan, the SBA will direct the lender to deny the loan forgiveness application. If the SBA determines that the borrower is ineligible for the loan amount or loan forgiveness amount claimed by the borrower, the SBA will direct the lender to deny the loan forgiveness application in whole or in part, as appropriate. Furthermore, the SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies.

May a Borrower Appeal the SBA’s Determination?

Yes, the SBA intends to issue a separate interim final rule addressing this process – we intend to issue a subsequent alert once the SBA issues such guidance.

If you have any questions, please contact Tarter Krinsky and Drogin’s COVID-19 response team at CV19team@tarterkrinsky.com.

Attorney Advertising. The information contained in this Legal Alert provides a general summary of the topics covered and is not intended to be and should not be relied upon as legal advice. You should consult with your legal counsel for advice and before making legal, business or other decisions.

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