As we roll into Autumn, more bankers are asking PPP forgiveness questions of WBA as they look to help more borrowers through this phase of the program. Of course, we were all hoping for legislation providing for streamlined automatic forgiveness for loans of $150,000 or less; however, with a failed attempt in the Senate on Wednesday, we are left hoping the House acts in the waning days of the floor period.
As time has continued to march on, a common question I receive is how to handle notes where the first payment date is nearing since at the time of origination, the law provided for only a 6-month payment deferral. In June, Congress passed new legislation that now makes the first payment date due either after SBA issues its final decision regarding forgiveness, or for business owners who do not file a forgiveness application, 10 months after the last day of the 24-week covered period. In either case, this is a long time from now. In addition, the legislation passed in June also extends the maturity date out for most PPP loans to 5 years from 2 years.
For several months, WBA has repeatedly sought formal guidance from SBA regarding how to document these changes in first payment date and maturity date. Specifically, we were hoping for guidance that allowed banks to send a single, standard communication to all PPP borrowers describing these changes in terms. As of today, SBA has not provided this guidance. As a result, bankers should follow their normal practices and policies for documenting such changes post-loan closing. Until we get specific guidance, I do recommend that bankers execute a modification agreement signed between the bank and its PPP borrower. The notes used under the PPP are individual contracts between the bank and PPP borrower, and the note terms somewhere likely state the note can only be amended by a mutually signed document. For example, see the “Entire Agreement” paragraph of the WBA 451 Business Note. WBA’s FIPCO created a template PPP Note Modification Agreement that is free for all banks to use and can be found here.
I am aware of some banks communicating these changes in terms in a more universal fashion with PPP borrowers. Again, until there is specific guidance from SBA, each bank needs to make this decision based on your own policy so as to not jeopardize the SBA guarantee. Regardless of how you document the changes, SBA has also stated that bankers may update these dates in ETran Servicing on their own, and that a modification form does not need to be uploaded to ETran. Bankers simply need to keep the modification documents in their own loan files.
Bankers are reminded that under the program, you have 60-days from receipt of a completed loan forgiveness application to make a forgiveness underwriting decision and submit the information to SBA. SBA then has 90-days to review and respond to the banker’s submission. WBA has learned that for those forgiveness applications submitted to SBA since the portal opened on August 10, final decisions from SBA will begin to be issued perhaps yet this week.
Finally, it is also important to note that the IRS issued guidance clarifying that lenders should not file information returns or furnish payee statements to report the amount of qualifying forgiveness on PPP loans. Under provisions in the CARES Act, PPP forgiveness income is not includible in the gross income of the eligible recipient. A copy of the IRS guidance may be found here.