On January 19, 2021, the Small Business Administration (the "SBA") in consultation with the Department of Treasury ("Treasury") posted new forgiveness application forms and the Interim Final Rule on Loan Forgiveness Requirements and Loan Review Procedures as Amended by Economic Aid Act ("2021 Forgiveness IFR"). The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the "Economic Aid Act" or "PPP2 Act") was enacted on December 27, 2020.
The forms and 2021 Forgiveness IFR are effective immediately, and the rules in the 2021 Forgiveness IFR apply to loans that were made in 2020 but for which the SBA had not yet remitted forgiveness to the lender.
To explore this new information, we created After the Economic Aid Act: An Updated Guide to the PPP Loan Forgiveness Review and Appeals Process, a four-part series that may offer some clarity around the latest updates.
- Initial Takeaways and Agency Guidance for the Latest PPP Updates
- Grounds for SBA Review, the SBA Loan Review Process, and Borrower Items
- The Lender's Role in the PPP Loan Review Process
- What to Know about PPP Appeals and Next Steps
The article below provides a general overview of our top takeaways for the PPP loan forgiveness review process as updated by the Economic Aid Act to help borrowers identify and address potential issues before and after submitting their loan forgiveness application.
Under the new guidance and before beginning the forgiveness application process, a borrower should:
- Understand the bank's calculator and internal process for reviewing the loan forgiveness application
- Understand the differences between the various forms, including the calculations and the certifications, and have support for those items. Our article " Ten Things to Know About the PPP Loan Forgiveness Applications" may offer additional clarity
- Make sure that the loan forgiveness application is accompanied by all the required documents (any borrower should check with their counsel to ensure they are not inadvertently producing documentation protected by the attorney-client privilege)
In addition to understanding the process and documents needed, a borrower should understand the timeline. A few timing considerations:
- In general, the lender has 60 days from receipt of a complete loan forgiveness application to issue a decision to the SBA, and the SBA, subject to its review, will remit funds within 90 days after the lender issues its decision to the SBA. The lender will notify the borrower of the loan forgiveness amount.
- If the lender determines that the borrower is not entitled to
forgiveness in any amount, the lender must notify the borrower and
the SBA. Within 30 days of that notice, the borrower may notify the
lender that it is requesting that the SBA review the lender's
decision. If the borrower makes a request, the lender must provide
the borrower's notice to the SBA within 5 days of receipt, and
the SBA will notify the lender if the SBA declines a request for
- If the SBA accepts the borrower's request for review, the SBA will notify the borrower and lender of the results of the review.
- If the SBA declines the borrower's request for review or if the borrower does not timely request SBA review, the lender is to notify the borrower that the borrower is not entitled to forgiveness.
- The SBA can use the statutory 90-day period to review the PPP loan and forgiveness documentation. There is an appeal process for certain SBA decisions.
There are also considerations to note about the SBA review process:
- The SBA can also initiate a review on its own. There are no specific timelines.
- Borrowers should prepare for a review, as the SBA reserves the right to review any loan "in SBA's discretion," and the SBA will review any loan at or over $2 million. Areas of review include eligibility, necessity, calculation of the loan amount, use of loan proceeds, and the calculation of the loan forgiveness amount.
- PPP documentation needs to be retained for six years after the date the loan is forgiven or repaid in full. However, for loans of $150,000 or less, there are different retention rules. For more details about this, see our article " Key Considerations for PPP Documentation."
The 2021 Forgiveness IFR incorporated and restated prior interim final rules relating to loan forgiveness and loan reviews. However, the SBA left in place the Interim Final Rule on Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules, and that interim final rule which contains the rules of practice for appeals of certain SBA loan review decisions under the PPP (the "PPP Appeal Rules of Practice").
In addition and on an ongoing basis, the SBA posts Frequently Asked Questions ("FAQs") and Frequently Asked Questions on Loan Forgiveness ("Forgiveness FAQs"). The SBA has stated that the 2021 Forgiveness IFR should be interpreted consistently with the FAQs and the Forgiveness FAQs; however, the Economic Aid Act overrides any conflicting guidance in the FAQs and Forgiveness FAQs, and the SBA will be revising the FAQs and Forgiveness FAQs to conform to the Economic Aid Act "as quickly as feasible."
Please note that section 1106 of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") is now codified as section 7A of the Small Business Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.