June 10, 2020
The Small Business Administration (SBA) has stated that they are going to audit every Paycheck Protection Program (PPP) loan forgiveness application for $2 million or more. They also intend to carefully review applications for less than $2 million to determine if the borrower was eligible for the loan.
In an article entitled New scrutiny of PPP forgiveness seekers will come from their lenders – not SBA author Sougata Mukherjee points out that the SBA has changed some of its guidance which will force lenders to be more diligent about processing loan forgiveness applications. According to the article published on June 2 in the Triangle Business Journal, things are about to get serious between the lenders and PPP borrowers.
Bankers and other lenders were initially promised as much as a 5% processing fee by the SBA for PPP loans. Yet, on May 22, the SBA made it clear to lenders that they must qualify for those processing fees.
Then on June 1, the U.S. Department of the Treasury said if the SBA determines the borrower was ineligible for a PPP loan, the lender is not eligible for a processing fee.
Banks, credit unions, online lenders and other financial institutions have 60 days after the expiration of the "expense covered period" to apply to the SBA for forgiveness. The SBA could then take as much as 90 days to accept, reject or send the forgiveness application back to the lender with questions.
PPP administrators could commence a loan review months after the application is received. A Federal Register document states that if the SBA notifies the lender that it has commenced a loan review, the lender shall not approve any application for loan forgiveness for such loan until the SBA notifies the lender in writing that the SBA has completed its review.
The SBA also instituted a clawback provision. If the SBA determines that a borrower was ineligible for a PPP loan based on the provisions of the CARES Act or application guidelines under the interim final rule (IFR), the SBA will seek repayment of the lender-processing fee from the lender. SBA’s determination of the borrower eligibility will have no effect on SBA’s guaranty of the loan if the lender has complied with its obligations under section III.3.b of the First Interim Final Rule and the document collection and retention requirements described in the lender application form.
Furthermore, if the SBA asks the lender to return the processing fee, it may also determine the lender may not have properly collected, secured, and retained the required documents needed to apply for forgiveness. In that case, the SBA may determine that the loan is not eligible for a guaranty.
All of this has persuaded some lenders to sell their PPP portfolio on the secondary market. Loan forgiveness, processing fee eligibility, and loan guarantees is becoming very complicated. Some lenders think that the benefit is worth the risk.
Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. You can contract Rich Higgins, CPA, managing principal - New Jersey Office at
Richard.Higgins@MCC-CPAs.com
and me at
Marty.McCarthy@MCC-CPAs.com
. As always, we are happy to help.
Stay safe,
Marty McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).
