In its most recent version of PPP FAQs, SBA has clarified that the deferral of principal, interest, and fees on all PPP loans to the date SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, to 10 months after the end of the borrower’s loan forgiveness covered period) automatically applies to all PPP loans.
SBA also clarified that lenders are required to give immediate effect to the statutory extension and should notify borrowers of the change. SBA does not require a formal modification to the note. Additionally, a modification of a note to reflect the required statutory deferral period will not affect SBA’s guarantee of a PPP loan.
For those banks that seek to provide blanket notice to all PPP customers, the notice below could be used as a template. Before usage, banks should review and change a term in the template to accurately reflect terms within a bank’s own note (i.e., Creditor versus Lender, Borrower versus Maker, etc.)
Many banks have already executed modification agreements to make changes to a payment schedule and the extended deferral period. Those banks are not required to take further action under the new PPP FAQ.
The Paycheck Protection Program Flexibility Act automatically defers the payment of principal, interest, and fees on all PPP loans to the date SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, to 10 months after the end of the borrower’s loan forgiveness covered period). The change enacted by Congress applies to all PPP loans. As a result, the following change has been made to your existing PPP loan terms with [ABC BANK]:
1. Payments of unpaid principal, interest and fees under the PPP note are deferred until the SBA remits the amount of forgiveness of the PPP note under section 1106 of the CARES Act to the lender (or notifies the lender that no loan forgiveness is allowed). Notwithstanding the foregoing, if Maker for any reason fails to submit to Lender a fully completed and signed loan forgiveness application within ten months after the last day of the “loan forgiveness covered period” as defined in the CARES Act, as amended from time to time or any rules or guidance issued by the SBA pursuant to the CARES Act, then payments of unpaid principal, interest and fees shall begin on the date that is ten months after the last day of the “loan forgiveness covered period.”
By, Ally Bates