Alerts and Updates

Small Business Administration Releases New Interim Final Rule on PPP Loan Forgiveness

October 14, 2020

The SBA is releasing an alternative Loan Forgiveness Application available for borrowers who have received PPP loans of $50,000 or less.

On October 8, 2020, the Small Business Administration (SBA) released a new interim final rule detailing additional revisions to the Paycheck Protection Program (PPP) loan forgiveness process and loan review procedures. In addition, the SBA released Question 52 to its Frequently Asked Questions (FAQs) document on October 7, 2020, which addresses the deferral period for borrower payments of principal, interest and fees. This Alert summarizes the key points from the interim final rule and the update to the FAQs.

The key points for PPP loan borrowers are:

  • Borrowers of loans of $50,000 or less are exempt from any reductions in loan forgiveness based on (i) reductions in full-time equivalent employees or (ii) reductions in employee salary or wages, provided that these borrowers use the new SBA Form 3508S (described more fully below) to apply for loan forgiveness; and
  • All PPP loan borrowers can take advantage of the deferral of principal, interest and fees on the loan until either (i) the SBA remits the borrower’s loan forgiveness amount to the lender or (ii) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period.[1]

Changes to the Loan Forgiveness Rules ‒ Alternative Loan Forgiveness Application

The SBA is releasing an alternative Loan Forgiveness Application (SBA Form 3508S) available for borrowers who have received PPP loans of $50,000 or less (excluding borrowers that, together with its affiliates, receive loans totaling $2 million or more). Form 3508S allows eligible borrowers to be exempt from reductions in their forgiveness amounts based on (i) reductions in full-time equivalent employees or (ii) reductions in employee salary or wages that would otherwise apply. 

Changes to the Loan Review Rules

In connection with the release of Form 3508S, the SBA revised rules regarding documentation that lenders are required to review when borrowers submit Form 3508S. When a borrower submits Form 3508S to its lender, the lender must confirm receipt of (i) the borrower certifications contained in Form 3508S and (ii) documentation to verify the borrower’s payroll and nonpayroll costs. The SBA reiterated that it is the borrower’s responsibility to provide an accurate calculation of its loan forgiveness amount, and that borrowers will not receive loan forgiveness without submitting all required documentation. As set forth in the first interim final rule, lenders may, upon confirming receipt of all required documentation from the borrower, rely on borrower representations, and do not need to independently verify the accuracy of the borrower’s reported and submitted information.

Borrower Submission of Excess Costs

In the interim final rule, the SBA confirmed that even if a borrower submits documentation of eligible payroll and nonpayroll costs that exceed the total amount of such borrower’s PPP loan, the borrower may not receive loan forgiveness in excess of the principal amount of its PPP loan.

Deferral Period of PPP Loans

In Question 52 of the FAQs, the SBA confirmed that the extension of the deferral period under the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) automatically applies to all PPP loans. As background, the Flexibility Act extended the deferral period for borrower payments of principal, interest and fees on all PPP loans to the date (i) that SBA remits the borrower’s loan forgiveness amount to the lender or (ii) 10 months after the end of the borrower’s loan forgiveness covered period (if the borrower does not apply for loan forgiveness). The SBA confirmed that lenders are required to give immediate effect to the deferral of PPP loan payments and should notify their borrowers. Additionally, the SBA confirmed that the statute provides an automatic extension, and therefore promissory notes do not need to be formally modified for borrowers to take advantage of the deferral described above.

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Notes

[1] Borrowers have 10 months after the end of the applicable loan forgiveness period to submit an application to their lender for loan forgiveness. The loan forgiveness period is either (i) the 24-month period beginning from the date of the first disbursement or (ii) for loans received before June 5, 2020, the eight-month period beginning from the date of the first disbursement.

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