From the desk of Rose Oswald Poels, President and CEO, Wisconsin Bankers Association
With the SBA portal opening Aug. 10 to accept completed forgiveness applications, more borrowers are starting to submit PPP paperwork to lenders for processing. As a result, more questions are being asked regarding this phase of the PPP program that I thought would be helpful to recap here for everyone.
Lenders have 60 days from receiving a complete PPP forgiveness application to make a decision regarding forgiveness eligibility and forward its decision to SBA using the portal. Lenders may accept scanned copies of signed loan forgiveness applications and documents, as well as accept any form of e-consent or e-signature that complies with the requirements of E-SIGN. The following is a helpful checklist of documents needed and action steps lenders must take in reviewing such applications for completeness before submitting them to SBA.
- Be sure borrower completed all certifications on Form 3508 or Form 3508EZ
- Confirm receipt of all documentation the borrower must submit to aid in verifying payroll and nonpayroll costs.
- For SBA Form 3508, confirm the borrower’s calculations by reviewing the documentation submitted, including the dollar amount of the:
- Cash Compensation, Non-Cash compensation, and Compensation to Owners claimed on Lines 1, 4, 6, 7, 8 and 9 on PPP Schedule A and
- Business Mortgage Interest Payments, Business Rent or Lease Payments, and Business Utility Payments claimed on Lines 2, 3 and 4 on the PPP Loan Forgiveness Calculation Form.
- For SBA Form 3508, confirm that the borrower made the calculation on Line 10 correctly by dividing the borrower’s Eligible Payroll Costs claimed on Line 1 by 0.60.
- For SBA Form 3508EZ, confirm the borrower’s calculations by reviewing the documentation submitted, including the dollar amount of the Payroll Costs, Business Mortgage Interest Payments, Business Rent or Lease Payments, and Business Utility Payments claimed on Lines 1, 2, 3 and 4.
- For SBA Form 3508EZ, confirm that the borrower made the calculation on Line 7 correctly by dividing the borrower’s Eligible Payroll Costs claimed on Line 1 by 0.60.
- If there are errors in the borrower’s calculations, or there is a material lack of substantiation in the borrower’s supporting documents, then the lender must work with the borrower to remedy the issue. This could include re-submission to lender of a new, revised application from the borrower that corrects the errors.
- When the lender is satisfied that the borrower’s application is complete and the lender made a decision regarding forgiveness eligibility, the lender must submit the following items to SBA:
- For applications submitted using SBA Form 3508: the PPP Loan Forgiveness Calculation Form; PPP Schedule A; and if provided to lender, the optional PPP Borrower Demographic Information Form.
- For applications submitted using SBA Form 3508EZ: the SBA Form 3508EZ; and, if provided to lender, the optional PPP Borrower Demographic Information Form.
- If the lender is denying forgiveness in any amount, the lender is required to notify the borrower of this decision in writing and the borrower has 30 days from receipt of the notice from lender to request that SBA review the lender’s decision.
While providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower, and the borrower attests to the accuracy of its reported information and calculations on the forgiveness application form, the lender is also expected to perform a “good faith review” in a reasonable time of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness.
As a result, I believe this good faith review requirement necessarily means lenders need to go through the documentation submitted, confirm that all the proper calculations are correctly placed on the application, and re-calculate the math to ensure accuracy. For example, lenders need to know what the compensation limits are to owners to be sure the borrower is not accidentally claiming forgiveness for more money than what the borrower is entitled to claim. Another place where mistakes can occur is ensuring that the pro-rated $100,000 limit is not exceeded for each employee who normally earns more than this threshold annually.
How carefully lenders must review the payroll documentation provided for data and calculation accuracy depends on the source. Minimal review of calculations based on a payroll report by a recognized third-party payroll processor is reasonable; however, if payroll costs are not documented from such recognized sources, more extensive review of calculations and data will be needed.
PPP Forgiveness and Timing of Loan
It is important to remember that as long as a borrower submits its loan forgiveness application within 10 months of the completion of the Covered Period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA. If the loan is fully forgiven, the borrower is not responsible for any payments. If only a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance due on the loan must be repaid by the borrower on or before the maturity date of the loan (either 2 or 5 years). Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. The borrower is responsible for paying the accrued interest on any amount of the loan that is not forgiven. The lender is responsible for notifying the borrower of remittance by SBA of the loan forgiveness amount (or that SBA determined that no amount of the loan is eligible for forgiveness) and the date on which the borrower’s first payment is due, if applicable. The lender must continue to service the loan.
For loans documented early in the process when a six-month deferment of payments was the requirement, you may consider modifying your current loan documents to reflect the longer delay in potential monthly payments. FIPCO created a template PPP Modification Form for this purpose that anyone may use. It can be found here.
PPP and EIDL
The following FAQs were recently published by SBA, confirming previous guidance related to the effect of EIDL on PPP forgiveness.
1. SBA will deduct the amount of any Economic Injury Disaster Loan (EIDL) advance received by a PPP borrower from the forgiveness amount remitted to the lender. How will a lender know the amount of the EIDL advance that will be automatically deducted by SBA?
If a borrower received an EIDL advance, SBA is required to reduce the borrower’s loan forgiveness amount by the amount of the EIDL advance. SBA will deduct the amount of the EIDL advance from the forgiveness amount remitted by SBA to the lender. The lender will be able to confirm the amount of the EIDL advance that will be automatically deducted by SBA from the forgiveness payment by reviewing the borrower’s EIDL advance information in the PPP Forgiveness Platform.
2. What should a lender do if a borrower received an EIDL advance in excess of the amount of its PPP loan?
A borrower that received an EIDL advance in excess of the amount of its PPP loan will not receive any forgiveness on the PPP loan, because the amount of an EIDL advance is deducted from the PPP loan forgiveness amount. The lender is responsible for notifying the borrower of the date on which the borrower’s first loan payment is due. The lender must continue to service the loan. The borrower must repay the remaining loan balance by the maturity date of the PPP loan (either two or five years). If a borrower is determined to have been ineligible for a PPP loan for any reason, SBA may seek repayment of the outstanding PPP loan balance or pursue other available remedies.
- Capitol Day(s): This year’s Capitol Day will look a bit different, but what hasn’t changed is how important it is for you to participate. Join us for the kickoff on Sept. 16. RSVP today! And a quick "Thanks" to our sponsors, Bankers' Bank and Federal Home Loan Bank of Chicago, for supporting this important event. Register here!
- FIPCO Deferral Agreements: The tried and trusted WBA form set includes three deferral agreements available to all WBA member institutions through FIPCO. The federal banking regulators have issued guidance encouraging banks to work with customers and clients affected by the COVID-19 pandemic and efforts to slow its spread. The deferral agreements are available for consumer, commercial, and agricultural business loan transactions and can be purchased in hardcopy or as fillable PDFs. Learn more and find the agreements here.