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Highlights for Lenders: Understanding the SBA Guidance on the Paycheck Protection Program

The Small Business Administration (SBA) issued interim guidance last week providing banks and businesses more guidance and understanding regarding the loans available through the Paycheck Protection Program. Please click on the following link for the entire document: PPP Interim Final Rule.

Highlights regarding interim guidance for lenders are below.

Who is eligible to make PPP loans?

All SBA 7(a) lenders are automatically approved to make PPP loans on a delegated basis. Since SBA is authorized to make PPP loans up to $349 billion by June 30, 2020, the Administrator and the Secretary have jointly determined that authorizing additional lenders is necessary to achieve the purpose of allowing as many eligible borrowers as possible to receive loans by the June 30, 2020 deadline.

The following types of lenders have been determined to meet the criteria and are eligible to make PPP loans unless they currently are designated in Troubled Condition by their primary federal regulator or are subject to formal enforcement action:

  • Any federally insured depository institution or any federally insured credit union.
  • Any Farm Credit System institution, with some exceptions.
  • Any depository or non-depository financing provider that originates, maintains, and services business loans or other commercial financial receivables and participation interests; with several stipulations.

Qualified institutions described in the first two sub-bullets will be automatically qualified under delegated authority by the SBA upon transmission of CARES Act Section 1102 Lender Agreement (SBA Form 3506) unless they currently are designated in Troubled Condition by their primary federal regulatory or subject to a formal enforcement action.

What do lenders have to do in terms of loan underwriting?

Lender underwriting requirements include:

  • Confirm receipt of borrower certification contained in PPP Application form issued by SBA.
  • Confirm receipt of information demonstrating that a borrower had employees for whom borrower-paid salaries and payroll taxes on or around February 15, 2020.
  • Confirm the dollar amount of average monthly payroll costs for the preceding calendar year by reviewing the payroll documentation submitted with the borrower’s application.
  • Follow applicable BSA requirements. For federal depository institutions and federal credit unions PPP loans for existing customers will not require re-verification under applicable BSA requirements, unless otherwise indicated in the institution’s risk-based approach to BSA compliance. Entities that are not presently subject to the requirements of BSA, should, prior to engaging in PPP lending activities establish an anti-money laundering compliance equivalent to that of a comparable federally regulated institution. See the complete interim final rule for further guidance.

The interim final rule states that each lender’s underwriting obligation under the PPP is limited to the items above and reviewing the “Paycheck Protection Application Form.”

Can lenders rely on borrower documentation for loan forgiveness?

Yes. The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs. The Administrator will hold harmless any lender that relies on such borrower documents and attestation from a borrower. The Administrator, in consultation with the Secretary, has determined that lender reliance on a borrower’s required documents and attestation is necessary and appropriate in light of section 1106(h) of the Act, which prohibits the Administrator from taking an enforcement action or imposing penalties if the lender has received a borrower attestation.

What fees will lenders be paid?

  • Lender Fees paid by the SBA for processing PPP loans:
    • 5 percent for loans of not more than $350,000.
    • 3 percent for loans of more than $350,000 and less than $2,000,000.
    • 1 percent for loans of at least $2,000,000.

Additional Information:

Loans will be guaranteed under the PPP under the same terms, conditions and processes as other 7(a) loans, with certain changes including but not limited to:

  • The guarantee percentage is 100 percent.
  • No collateral will be required.
  • No personal guarantees will be required.
  • The interest rate will be 100 basis points or one percent.
  • All loans will be processed by all lenders under delegated authority and lenders will be permitted to rely on certifications of the borrower in order to determine the eligibility of the borrower and the use of loan proceeds.

Waiver of Fees for Lender:

  • There will be no up-front guarantee fee payable to SBA by the Borrower.
  • There will be no lender’s annual service fee (“on-going guaranty fee”) payable to SBA.
  • There will be no subsidy recoupment fee.
  • There will be no fee payable to SBA for any guarantee sold into the secondary market.

A PPP loan may be sold on the secondary market after the loan is fully disbursed. A PPP loan may be sold on the secondary market at a premium or a discount to par value. SBA will issue guidance regarding any advance purchase for loans sold in the secondary market.

A lender may request that the SBA purchase the expected forgiveness amount of a PPP loan or pool of PPP loans at the end of week seven of the covered period, based on certain additional terms, and the SBA will purchase the expected forgiveness amount of the PPP loans within 15 days of the date on which the SBA receives a complete report that demonstrates that the expected forgiveness amount is indeed reasonable.

The SBA may provide further guidance, if needed, through SBA notices and a program guide that will be posted on SBA’s website below. Questions on the Paycheck Protection Program 7(a) Loans may be directed to the Lender Relations Specialist in the local SBA Field Office. The local SBA Field Office may be found below too.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We therefore make no warranties, expressed or implied, on the services provided hereunder.