SBA Kicks-Off MDW with Further Loan Forgiveness Guidance
On May 15, 2020, the SBA released the PPP Loan Forgiveness Application. While the application clarified an amount of questions surrounding the mechanics of the calculation, it created others. In what is seemingly becoming a habit for Friday evenings, the SBA started Memorial Day Weekend with a bang, issuing their 14th Interim Final Rule (“IFR 14”) on May 22, 2020.
IFR 14 “supplements previous regulations and guidance on the discrete issues related to loan forgiveness.” Discrete issues, indeed. There is some new guidance in IFR 14, but much of it was expected and mimics previous guidance issued. Below is a summary of the main provisions of IFR 14 that will be important as borrowers as they begin to consider the loan forgiveness process.
Loan Forgiveness Process
Borrowers must complete and submit a Loan Forgiveness Application (SBA Form 3508 or lender equivalent).
Lenders have 60 days from receipt of the application to issue a decision to the SBA. Once submitted, the SBA has 90 days to review the application and remit the amounts requested for forgiveness to the lender. This could potentially lead to a 150-day lag time between when a borrower submits their application and when the final decision is made. EIDL grant amounts will be deducted from the final forgiveness amount issued to the lender. The lender is responsible for communicating the final decision to borrowers.
If a borrower is required to make scheduled payments prior to the final forgiveness decision, the lender will be required to remit excess amounts that are forgiven, including accrued interest, to the borrower. While this rule is helpful, it highlights the liquidity crunch that can be created for borrowers who are obligated to repay their loans until they receive a decision on their loan forgiveness applications. It also suggests the SBA should allow a period of time where borrowers in good faith can stop repayments on their loans by the amount of their anticipated loan forgiveness. This period should start when a borrower submits its application for forgiveness and ends when it receives a decision from its lender.
Additional information to be provided for loans in excess of $2M or loans that are selected for review by the SBA (see IFR #15).
Photo Credit Tim & Julie Harris