SBA Issues Additional Guidance on PPP Loans Including Loan Forgiveness

The SBA recently issued guidance including a new set of Frequently Asked Questions (FAQs) on Paycheck Protection Program (PPP) Loan Forgiveness.  Generally, in relation to loan forgiveness, the FAQs address: (i) certain general application related questions; (ii) payroll costs; (iii) non-payroll costs; (iv) reductions in forgiveness amounts; and (v) Economic Injury Disaster Loan (EIDL) advances.  Among other subjects, the FAQs clarify that:

• PPP lenders may accept: (i) scanned copies of loan forgiveness applications and documentation; and (ii) electronic consent and electronic signatures as long as they are compliant with federal law;
• Borrowers who submit their loan forgiveness application within 10 months of the end of the covered period are not obligated to make any payments until the forgiveness amount is remitted to the lender;
• Payroll costs incurred during the Covered Period or the Alternative Payroll Covered Period may be forgiven if they are paid on or before the next payroll date after the Covered Period or Alternative Covered Period;
• Group health care benefits that are paid or incurred during the Covered Period or the Alternative Covered Period are considered payroll costs and eligible for forgiveness. However, payroll costs do not include pre-tax or after tax expenses paid by the employee or beneficiary of the plans;
• Treatment of owner compensation for owners of C and S corporations, general partners, and LLC owners differs (and how each works);
• EIDL advances will be deducted from the borrower’s loan forgiveness amount and lenders may review a borrower’s EIDL advances in the PPP Forgiveness Platform;
• Borrowers who received EIDL advances in excess of their PPP loans do not qualify for PPP loan forgiveness; and   
• When a borrower’s PPP loan is not forgiven in full, the lender must notify the borrower of: (i) any PPP loan amounts not forgiven; and (ii) the date on which the first loan payment is due.  In addition, the lender must continue to service the loan.  The borrower must pay any outstanding amounts by the loan’s maturity date.

In addition, the SBA added Questions 50 and 51 to its separate set of FAQs for PPP loans generally. Question 50 clarifies that “the payment or nonpayment of fees of an agent or other third party is not material to SBA’s guarantee of a PPP loan or to SBA’s payment of fees to lenders.”  Question 51 notes that vision and dental benefits fall within payments required for the provision of group health insurance.

Finally, the SBA issued an interim final rule on Loan Review Procedures and Related Borrower and Lender Responsibilities to provide information on the SBA’s appeal process for loan review decisions under the PPP.  Such decisions include official written decisions by SBA, after SBA completes a review of a PPP loan, that finds a borrower: (i) was ineligible for a PPP loan; (ii) was ineligible for the PPP loan amount received or used the PPP loan proceeds for unauthorized uses; (iii) is ineligible for PPP loan forgiveness in the amount determined by the lender in its full or partial approval decision issued to SBA (except for the deduction of any EIDL advance in accordance with the CARES Act); and/or (iv) is ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to SBA.

Among other things, a borrower’s appeal to the SBA Office of Hearings and Appeals (OHA) must include: (i) the basis for OHA’s jurisdiction; (ii) a copy of the SBA’s decision being appealed; (iii) a statement explaining why the SBA decision is erroneous, including supporting facts and legal arguments; (iv) relief being sought; and (v) signed copies of payroll tax filings filed with the IRS, and various state and federal tax returns and schedules.  Note that only borrowers that have been issued a final SBA loan review decision have standing to appeal the SBA’s loan review decision to OHA.

Although the interim final rule was immediately effective upon issuance, the SBA will accept comments through September 28, 2020.