Guidance for Lenders on PPP Forgiveness

May 16, 2020 - William R. Johnson
The Small Business Administration issued the long-awaited Paycheck Protection Program Loan Forgiveness Application (the “Application”), together with instructions (the “Instructions”), on May 15, 2020. 


The Application consists of four parts:  (1) the PPP Loan Forgiveness Calculation Form, (2) PPP Schedule A, (3) PPP Schedule A Worksheet, and (4) Optional Demographic Information Form.  Items (1) and (2) must be submitted to the applicable lender. See Haynsworth Sinkler Boyd’s detailed discussion of the Application and Instructions here.
 
The CARES Act, together with the interim final rule originally issued April 2, 2020, provide an unprecedented level of assurances to lenders that the ultimately responsibility for invalid certifications lies with borrowers.  Nevertheless, lenders are tasked with the responsibility for intake and submission of loan forgiveness applications and supporting documents.  This summary restates the applicable guidance and provides recommendations to lenders based on the applicable law and guidance together with documentation requirements set forth in the Application and Instructions.  Lenders who follow the applicable law and guidance are entitled to rely fully on the CARES Act’s assurance that they will be held harmless for any liability associated with incorrect loan forgiveness applications.
 
I. Applicable Law and Guidance
 
Section 1106(h) of the CARES Act
           
“(h) Hold Harmless.—If a lender has received the documentation required under this section from an eligible recipient attesting that the eligible recipient has accurately verified the payments for payroll costs, payments on covered mortgage obligations, payments on covered lease obligations, or covered utility payments during covered period
 
(1) an enforcement action may not be taken against the lender under section 47(e) of the Small Business Act (15 U.S.C. 657t(e)) relating to loan forgiveness for the payments for payroll costs, payments on covered mortgage obligations, payments on covered lease obligations, or covered utility payments, as the case may be; and 
(2) the lender shall not be subject to any penalties by the Administrator relating to loan forgiveness for the payments for payroll costs, payments on covered mortgage obligations, payments on covered lease obligations, or covered utility payments, as the case may be.”
 
Interim final rule (originally posted April 2, 2020)
 
1. Under “1. General”
 
SBA will allow lenders to rely on certifications of the borrower in order to determine eligibility of the borrower and use of loan proceeds and to rely on specified documents provided by the borrower to determine qualifying loan amount and eligibility for loan forgiveness.  Lenders must comply with the applicable lender obligations set forth in this interim final rule, but will be held harmless for borrowers’ failure to comply with the program criteria; remedies for borrower violations or fraud are separately addressed in this interim final rule.”
 
2.  Under “2.s. “What happens if PPP loan funds are misused?”
 
“iv. Documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight week period following this loan will be provided to the lender.”
 
3.  Under “3. What do lenders need to know and do?”
 
“c. 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.”
 
II.  Observations
 
The CARES Act provides very strong protection for lenders who receive borrower attestations regarding loan forgiveness calculations.
 
Consistent with the CARES Act, Q&A 3.c. from the interim final rule originally issued April 2, 2020 provides that a lender does not need to conduct verification of loan forgiveness calculations if two requirements are satisfied.  First, the borrower must submit documentation supporting its request.  Second, the borrower must attest that it has accurately verified the payments. 
 
As to documentation, the Application and Instructions include detailed provisions on the documentation that must be submitted (see outline below).  Lenders should ensure that such documentation is provided and may use the outline below as a checklist.
 
As to attestation, Application requires the borrower to certify as follows:  “The Borrower has accurately verified the payments for the eligible payroll and nonpayroll costs for which the Borrower is requesting forgiveness.”  This should satisfy the requirement that the lender receive an attestation from the borrower that the borrower has accurately verified the payments.  As long as the lender has that certification and confirms that the back-up documents are provided, the lender need not verify the calculations.
 
III.  Documents Required for PPP Loan Forgiveness Application issued May 15, 2020
 
The Application and Instructions provide that each borrower must submit the following documents with its PPP Loan Forgiveness Application (click here for a printable checklist):
 
1.  PPP Loan Forgiveness Calculation Form
2.  PPP Schedule A
3.  Payroll Documentation
     a. bank statements or third-party payroll service provide reports documenting payroll
     b. tax forms or third-party payroll service reports
         i.  payroll tax filings reported or that will be reported on IRS Form 941
         ii. state quarterly business and individual wage reporting (state income tax withholding)
         iii. state unemployment tax filings
     c. receipts, cancelled checks, or statements documenting health insurance payments
     d. receipts, cancelled checks, or statements documenting retirement payments
4.  Full-Time Equivalent (FTE) Documentation (time period elected by borrower, must match period used for Schedule A, Line 11)
     a. Determination of number
         i.  average FTEs per month 2/15/19-6/30/19, or
         ii.  average FTEs per month 1/1/20-2/29/20, or
         iii.  if seasonal employer, average FTEs per month 2/15/19-6/30/19, 1/1/20-2/29/20, or any consecutive 12-week period 5/1/19-9/15/19
     b. Documents may include payroll tax filings reported or that will be reported on IRS Form 941 and state quarterly business and individual employee wage reporting and unemployment tax filings reported or that will be reported
5.  Nonpayroll Documentation (establishing existence of obligations/services prior to 2/15/20 and eligible payments within covered period)
     a.  For business mortgage interest, copy of lender amortization schedule and receipts or cancelled checks verifying payments made; OR lender account statements from February 2020 and the months of the covered period through one month after the end of the covered period verifying interest amounts and eligible payments
     b.  For business rent or lease payments, copy of current lease agreement and receipts or cancelled checks verifying eligible payments from covered period; OR lessor account statements from February 2020 and the months of the covered period through one month after the end of the covered period verifying eligible payments
     c.  For business utility payments, copy of invoices from February 2020 and covered period and receipts, cancelled checks, or account statements verifying eligible payments

Please contact Will Johnson for additional information or questions about PPP loans and the loan forgiveness application process.