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PPP Loans – Loan Forgiveness and SBA Review Procedure

May 29, 2020

By Robert J. Waine, Esquire

If you have received a Payroll Protection Plan (PPP) loan under the Cares Act, you should be aware that the SBA has issued two interim final rules: one related to loan forgiveness and the other related to SBA’s procedures for review of PPP loans.  If you have a PPP loan, the amount expended by a business/borrower on (1) payroll costs, (2) interest payments on certain mortgage obligations, (3) rental payments under certain lease obligations, and (4) certain utility payments, can be forgiven if they are incurred in the 8-week period following disbursement of the PPP loan proceeds.  A borrower can apply for loan forgiveness once the 8-week forgiveness period has run.  The first PPP loans were disbursed after April 3, 2020; therefore, those borrowers will be able to start applying for loan forgiveness on May 29, 2020.  Although the two rules are not final, they are effective immediately.  The SBA has also issued a loan forgiveness application.

The rules make clear that a borrower applies to its lender for loan forgiveness.  The lender is responsible for making the forgiveness determination, and has 60 days to review the application and issue a decision on loan forgiveness to the SBA.  The lender also requests payment from the SBA of the forgiven amount at the time the lender issues its decision.  The SBA then has 90 days to review the lenders’ decision and make payment.  The lender is responsible for communicating with the borrower regarding the forgiveness amount and any determination by the SBA.

When applying for loan forgiveness, it is important the borrower fully understands the new rules to maximize the amount forgiven.  The rules:

  • provide that certain borrowers can select when the 8-week loan forgiveness period begins;
  • clarifies what payments can be included in the loan forgiveness amount;
  • set forth how to determine payroll compensation for self-employed individuals and owner- employees; and
  • explain how to calculate a loan forgiveness reduction based upon a reduction in the number of full-time equivalent employees, including a “safe-harbor” related to employees who refuse to return to work.

The rule on SBA review of loans also provides a right to appeal a determination that the borrower was not eligible for a PPP loan; however, the procedures for an appeal have not yet been published.

The Cares Act and the PPP loan program are new and the SBA is regularly issuing new guidance and rules to implement its provisions.  The attorneys at Rothman Gordon, P.C., are closely following the ever- evolving requirements related to the Cares Act and PPP loans.  We are here to assist to navigate these difficult times.  If you need any assistance, please contact us online or call (412) 338-1100.

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