On January 19, 2021, the US Small Business Administration (SBA) published his 28^e Provisional final rule (Pardon IFR) covering loan forgiveness requirements and paycheck protection program review procedures, as re-authorized and amended by the Economic Assistance to Small Businesses, Nonprofit Organizations and Badly Affected Sites Act (the Economic aid Act), and as enacted under the Coronavirus Aid, Relief and Economic Security Act (as amended, supplemented or otherwise amended from time to time before the enactment of the Economic Aid Act, including the Paycheque Protection Program and Healthcare Improvement Act, the Pay Check Protection Program Flexibility Act, applicable federal regulations, and interpretive guidelines issued by the SBA and the U.S. Treasury Department (the CARES Law)).

As part of Forgiveness IFR, the SBA has also issued the following updated loan waiver requests and instructions:

The Forgiveness IFR consolidates, restates, and clarifies previous SBA regulations governing loan forgiveness, while updating these rules to incorporate changes made by the Economic Aid Act. The SBA advises that each of the new interim final rules, including the IFR of Pardon, should be interpreted consistently with each other and with the Frequently Asked Questions (FAQ)[1], but any discrepancies or conflicts that may exist should be resolved in favor of the Economic Aid Act.

The highlights of what we believe to be important new guidelines or a clarification of existing guidelines in the IFR on Forgiveness are as follows:

I. General procedures for reviewing PPP loans by the lender and the SBA

The Forgiveness IFR confirms previous guidelines that while the SBA may undertake a review of any PPP loan, whether it is the first or second drawdown, at any time, the lender is responsible for proceeding. reviewing a borrower’s completed PPP loan forgiveness request. and accompany the required supporting documents, including payroll data, and make a decision based on the request for remission and supporting documents for the amount of the remittance. The lender must make a decision to the SBA on the amount of loan forgiveness no later than 60 days after receiving a complete loan forgiveness application from the PPP borrower. This decision may take the form of an approval (in whole or in part); denial; or (if ordered by the SBA) denial without prejudice due to a pending SBA review of the loan for which forgiveness is requested.

In the case of a refusal without prejudice, the lender must notify the PPP borrower in writing that the lender has made a decision to the SBA denying the cancellation of the loan and provide the SBA with a copy of the notice. The notice to the PPP borrower should include the reasons why the lender has concluded that the PPP borrower is not entitled to any loan forgiveness for any amount and inform the PPP borrower that the PPP borrower has 30 calendar days from receipt of the notification to request, through the lender, the SBA review of the lender’s decision. Within 30 days of the lender’s notification, a PPP borrower may notify the lender that it is asking the SBA to review and reconsider the lender’s decision, unless the SBA has determined that the borrower has is not eligible for a PPP loan. Within 5 days of receipt, the lender must notify the SBA of the borrower’s PPP review request.

The SBA reserves the right, in its sole discretion, to review the lender’s decision to cancel the loan (whether approved in whole or in part, or denied), and will notify the lender if the SBA decides to review the lender’s decision or if the SBA denies a request for review. If the remission is refused in whole or in part and the PPP borrower does not timely request the SBA review or if the SBA denies the review request, the lender is required to notify the PPP borrower of the date on which the borrower’s first amortizable payment the unsatisfied portion of the PPP loan plus accrued interest is due. If the SBA accepts a PPP borrower’s review request, the SBA will notify the PPP borrower and the lender of the results of the review. If the SBA has, after such examination, refused the remission in whole or in part, the lender is required to inform the PPP borrower of the date on which the borrower made the first amortized payment of the loan. principal of the non-remitted portion of the PPP loan plus accrued interest. is of.

The Forgiveness IFR adds that the SBA may, at its discretion, review a borrower’s first and second PPP loan drawdowns at the same time or at different times, and also analyze whether a borrower was “eligible for a PPP loan on the basis of the provisions of the CARES Law, the Law on Economic Aid, the rules and guidelines available at the time of the borrower’s PPP loan application and the borrower’s loan application conditions. If the SBA undertakes such a review, the SBA will notify the lender in writing and the lender must in turn notify the PPP borrower in writing within five business days. The SBA can, among other things, examine whether the borrower (i) correctly calculated the maximum loan amount available, (ii) used the proceeds of the PPP loan for the authorized uses, and (iii) in the case of a second drawdown of PPP loan, if the borrower has undergone the 25% reduction in gross receipts required to be eligible for such a second drawdown PPP loan. The SBA considered that such a review is “essential to ensure that PPP loans are intended for businesses intended by Congress and that the proceeds of PPP loans are used for the purposes required by Congress, including the central purposes of the law. CARES and the Economic Aid Act to keep workers paid and employed.

If the SBA, upon review, determines that the borrower was not eligible for a PPP loan, the PPP loan will not be eligible for a discount. The SBA may also request immediate repayment of the outstanding balance of the PPP loan or exercise other remedies available to it. It is important to note that the IFR on Pardon notes that the non-recourse provisions of the CARES Act limiting the SBA’s recourse against individual shareholders of the PPP borrower for non-payment of the PPP loan apply ” only if the borrower is an eligible beneficiary of the loan ”.

II. Easier forgiveness request for PPP loans under $ 150,000

In accordance with Article 307 of the Law on Economic Aid, the ASB has published SBA Form 3508S, which is a simpler rebate application form for borrowers of PPP loans under $ 150,000. The SBA 3508S form only requires these borrowers to certify that they are in compliance with the rules governing PPP at the time of application, and that the information provided in this application is true and correct in all material respects. There is no additional documentation to provide.

III. Silence on SBA review of PPP loans of $ 2 million or more and certification of economic necessity

As discussed previously in our customer alerts on the subject here and here, the SBA said it would review and audit companies receiving first-draw PPP loans of $ 2 million or more. In accordance with FAQ # 46, if the ASB determines during its review that a borrower “did not have an adequate basis for the required certification regarding the need for the [PPP] loan application ”, the SBA“ will request repayment of the outstanding balance of the PPP loan and inform the lender that the borrower is not eligible for loan cancellation ”. In addition, the SBA also issued a Questionnaire on the need for a loan lenders to provide PPP borrowers who have received loans of $ 2 million or more. FAQ # 53 and the Loan Necessity Questionnaire states that, at the request of their lender, PPP borrowers must return the completed questionnaire form to their lender within 10 business days of receipt, and within 5 business days of the date, the Lender is required to upload the form and any related document to the PPP SBA forgiveness platform.

The Forgiveness IFR does not cite FAQ # 46 and # 53 or the Loan Necessity Questionnaire, nor does it address the SBA’s review process for PPP loans of $ 2 million or more. However, as noted in Footnote 1, the SBA has indicated that the FAQ is being revised and updated to reflect changes made by the Economic Aid Act, so the SBA may yet provide additional guidance in the days and weeks to come. .

*Things change quickly, and the measurements and interpretations described here may change. Our analysis is necessarily limited by the temporal sensitivities of the current crisis, as well as by the lack of precedent for some of what is contained here. This analysis represents our best interpretation and recommendations based on the current state of affairs. *

FOOTNOTES

[1] On January 29, 2021, the SBA published an updated FAQ with the following heading in bold red at the top of each page: “FAQs 1 through 53 are under review and do not yet reflect changes made by the Economic Aid to Hard -Hit Small Businesses, Nonprofits, and Venues Act enacted on December 27, 2020. ”The January 29 broadcast added only three new FAQs to answer specific questions. The SBA has not indicated when a larger update will be available.