Disclaimer: This information is subject to forthcoming SBA regulations. We continue to monitor those developments, and will update this information as additional guidance becomes available. The SBA and the Treasury have continued to post guidance and regulations. This information is a summary only and is provided as of its date. All clients are encouraged to read and review the Interim Final Rules for more specifics.
This FAQ is intended to help answer Lender specific questions on making and entering into PPP Loans under the CARES Act. Please also see the additional Borrower perspective FAQs on the Husch Blackwell LLP website for additional information on the PPP Loan Program.
Updated June 1, 2020
LENDER ISSUES RELATED TO PAYCHECK PROTECTION PROGRAM (PPP) LOANS UNDER THE CARES ACT
Q: What is the Application Process?
A: PPP Loans will be made through an SBA‑approved Lender and will be guaranteed by the SBA. If the business has a relationship with a Lender, it should immediately contact that Lender to see if that Lender will be making PPP Loans. The business should immediately begin working with an SBA‑approved Lender to confirm eligibility and to start the application process. The SBA has released regulations making clear that Lenders can use their internal forms and portals so long as they are asking the same questions and requesting the same information as the SBA Application.
The PPP Application, Regulations and other guidance is posted on the Treasury’s website.
Q: What Lenders can make PPP Loans under the CARES Act?
Q: Are Lenders required to submit any special forms or paperwork with the Application?
Q: What paperwork is required to document these PPP Loans?
A: Please see the following forms:
Q: What percentage of PPP Loans are guaranteed by the SBA?
A: 100% of amount not forgiven (see discussion on forgiveness, below); however, at least 75% of the forgiven amount must have been used for payroll.
Q: Are PPP Loans secured?
Q: Are PPP Loans under the CARES Act limited to a certain timeframe?
Q: What is the maximum principal amount of the PPP Loans?
A: Up to $10,000,000.
Q: What is the maximum interest rate Lender can charge on a PPP Loan?
Q: What is the maximum maturity for a PPP Loan?
A: 2 years.
Q: What underwriting is a Lender required to do for a PPP Loan?
Q: What liability does a Lender have for failure of a Borrower to comply with the PPP requirements or Lender’s underwriting and due diligence actions?
Q: Can the Lender submit an application for approval for a Borrower that is involved in bankruptcy proceedings at the time the application is made?
A: No, if the Borrower or the owner of the Borrower is involved in bankruptcy proceedings at the time of the application, that business is not an eligible Borrower for a PPP Loan. Additionally, if the Borrower becomes involved in a bankruptcy proceeding after the application, but before funds are disbursed, it is the Borrower’s obligation to inform the Lender and the Lender must not disburse the funds to the Borrower. The Lender may rely on the Borrower’s representations regarding its or an owner’s involvement in bankruptcy proceedings at the time of the application.
Q: Can the Lender accept electronic signature on PPP Loan Applications or related documents?
A: Yes; however, the authorized representative is signing on behalf of the Borrower and each owner of 20% or more of the applicant’s equity, so if more than one signatory is necessary, contact your bank for an additional signature form.
Q: Can PPP Loans be sold on the secondary market?
A: Yes, once the PPP Loan is fully disbursed, the PPP Loan may be sold on the secondary market at par, premium or discount. The SBA will not collect any fee for any guarantee sold on the secondary market, according to Lender guidelines posted by the U.S. Treasury Department on its website on March 31, 2020. The SBA provided this Procedural Notice regarding Whole Loan Sales, which includes compliance with 13 CFR § 120.432(a), except for PPP Loans only, the SBA’s prior written consent is not required. Any PPP Loans sold must be sold only to Lenders that have signed SBA Form 750, SBA Form 3506 or SBA Form 3507 (depending on type of Lender). The originating Lender for PPP Loans is deemed to meet the good standing and satisfactory performance standards in 13 CFR § 120.433. The originating Lender must provide the following information to the SBA’s Office of Credit Risk Management at PPPLoanSales@sba.gov immediately upon the sale:
Q: Can PPP Loans be syndicated or participated?
A: Yes, the SBA has provided this Procedural Notice addressing the sale of participating interests in PPP Loans. The Notice states that the sale of participations must comply with 13 CFR § 120.432(b), except that SBA’s prior written consent is not required for PPP Loans. Participations of up 100% of the principal balance are permitted. All participating Lenders must have a signed SBA Form 750, SBA Form 3506 or SBA Form 3507 (depending on type of Lender). The originating Lender for the participated loan must continue to hold the note, loan documents and retain all servicing rights. The originating Lender is the only party that the SBA will deal with for advance purchases of PPP Loans and PPP Loan forgiveness, as well as be the party that is eligible for the guarantee purchase of the PPP Loan by the SBA. The originating Lender is deemed to meet the good standing and satisfactory performance standards in 13 CFR § 120.433. The originating Lender must provide prior written notice of the sale of a participating interest to the SBA’s Office of Credit Risk Management at PPPLoanParticipation@sba.gov.
Q: Are there restrictions on the types and amounts of fees and expenses that the Lender may charge to the Borrower or to the SBA?
Q: What other limits are applicable to the terms of a PPP Loan?
Q: How do PPP Loans affect Lender capital requirements?
A: The CARES Act provides that PPP Loans shall be given a risk weight of 0% with respect to Federal banking or National Credit Union Administration Board applying capital requirement under their respective risk‑based capital requirements.
Q: Can a director or officer of a Lender who is also the owner of a business receive a PPP Loan?
A: SBA guidance states that an otherwise eligible business owned in whole or in part by an outside director or holder of less than 30% equity interest in the PPP Lender may still obtain a PPP Loan from that Lender of which the individual is a director or equity owner. However, this does not apply to a director or owner who is an officer of key employee of the PPP Lender. The business of course may instead obtain a PPP Loan from a different Lender if it cannot meet these requirements.
Q: What amounts of a PPP Loan can be forgiven?
Q: How does loan forgiveness of a PPP Loan work?
A: The CARES Act outlined two processes for forgiveness of PPP Loans. To date, the SBA Interim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities only discusses the second option outlined below. That same Interim Final Rule states that additional guidance on advance purchase of PPP Loans is forthcoming.
Q: Is there a due date for the Forgiveness Application?
A: As of the date of this publication, nothing in the Forgiveness Application, the Interim Final Rules or the SBA FAQs requires the Borrower to apply for forgiveness. These sources also do not provide a deadline by which Borrowers who do wish to apply for forgiveness must submit their forgiveness applications to their Lenders. Lenders may have included terms that require the Borrower to apply for forgiveness and to do so within a certain period of time.
Q: What happens if a Lender decides to deny PPP Loan Forgiveness?
A: If the Lender determines that forgiveness should be denied, the Lender must notify the Borrower of its decision in writing. The SBA may review the denial and has the same 90 day review period.
Q: Can a Borrower appeal a Lender’s decision to deny forgiveness?
A: Yes. Within 30 days of written notice of denial from the Lender, the Borrower may request that the SBA review the Lender’s decision. If the SBA undertakes such a review, the SBA will notify the Lender in writing and the Lender must notify the Borrower in writing within five (5) business days of receipt.
Q: What happens if the Lender receives notice that the SBA is reviewing a PPP Loan?
A: The Lender must notify the Borrower within 5 business days of receipt of such notice. The Lender must submit the following information to the SBA within 5 days of receipt of such notice:
Q: If the SBA determines that a Borrower is not eligible for forgiveness, will the Lender still receive its processing fee?
A: No, additionally, if within 1 year of the PPP Loan being disbursed, the SBA reviews a PPP Loan and determines that the Borrower was ineligible for a PPP Loan from the outset, based on the CARES Act or applicable rules or guidance available at the time of the Borrower’s initial loan application, then the SBA will seek to clawback the processing fee paid to the Lender. However, a determination of Borrower ineligibility and clawback of processing fee will not impact the SBA’s guaranty of the loan so long as the Lender complied with its underwriting responsibilities under Section III.3.b of the First Interim Final Rule.
Q: What happens to the amount of PPP Loan not forgiven?
A: If a Borrower is denied forgiveness in whole or in part, the amount of the loan not forgiven must be repaid by the Borrower on or before the two‑year maturity date. This applies only to loan forgiveness applications that are not reviewed by the SBA prior to the Lender’s decision on the forgiveness application. A Borrower should also review its promissory note and the other loan documentation it executed in connection with its PPP Loan for any additional implications of a denial of forgiveness and specific repayment requirements.
If the SBA determines that the Borrower is ineligible for the PPP Loan or is ineligible for the loan amount or the loan forgiveness amount claimed by the Borrower, the SBA may pursue other available remedies.
Q: Are PPP Loans for existing customers considered new accounts for FinCEN Rule CDD purposes?
A: If the PPP Loan is made to an existing customer and the necessary information was previously verified, Lenders do not need to re‑verify the information. Furthermore, if federally insured depository institutions and federally insured credit unions eligible to participate in the PPP program have not yet collected beneficial ownership information on existing customers, such institutions do not need to collect and verify beneficial ownership information for those customers applying for new PPP Loans, unless otherwise indicated by the Lender’s risk‑based approach to BSA compliance.
Q: Are there any timing rules on loan disbursements?
A: The Interim Final Rule on Disbursements was published on April 28, 2020. Except for loan increases for partnerships or seasonal employers (discussed below), the Lender must make one disbursement of the full loan amount within ten calendar days of the date that the SBA assigns the loan an SBA loan number, which is considered the date of approval. For SBA Loans that were approved prior to, but had not been disbursed by April 28, the Loan should have been disbursed within 10 calendar days of April 28. Loans that cannot not be disbursed within 20 calendar days of SBA loan approval because the Borrower did not submit additional, required information must be cancelled by the Lender and not disbursed. Any amounts of the Loan that are to refinance an EIDL loan should be sent by the Lender directly to the SBA and not to the Borrower.
On May 13, 2020, the SBA published the Interim Final Rule on Loan Increases that authorized Lenders to increase existing PPP Loans for partnerships or seasonal employers to include partner compensation as clarified in the Interim Final Rule posted on April 14 (relating to partner compensation) and the Interim Final Rule posted on April 28 (relating to seasonal employers). Partnerships that only included employee payroll costs in the calculation of the loan amount are permitted to increase the loan amount to include payroll costs for partner compensation based on the Interim Final Rule posted on April 14. Additionally, seasonal employers that received a PPP Loan prior to the Interim Final Rule published on April 28 containing the alternative time periods used for calculating the seasonal employer’s average monthly payments, may increase their Loan amount to the maximum permitted by such alternative time periods.
The increased Loan amounts and disbursements must be made prior to Lender’s submission of SBA Form 1502.