SBA Issues New PPP Rule Addressing Disbursement Requirements, Loan Reporting, and Lender Compensation
On April 28, 2020, the SBA issued a new Interim Final Rule (“IFR”) addressing certain requirements imposed on lenders under the Paycheck Protection Program (“PPP”). The IFR clarifies how and when PPP loans must be disbursed, sets expectations regarding the reporting of PPP loans to the SBA, and identifies certain circumstances under which a PPP lender will not be entitled to its processing fee as origination compensation for PPP loans. The rule is effective immediately, though requirements related to loan reporting contemplate the SBA’s issuance of a form that is not yet available.
First, the IFR clarifies several aspects of PPP loan disbursement requirements. The IFR provides that PPP loans are single disbursement loans. It also provides that the 10-day disbursement window within which a lender must disburse loan funds normally runs from the date the lender receives a SBA loan number, but: (i) for loans not already fully disbursed, the 10-day window runs from April 28th and the 8-week forgiveness window runs from the date of the first disbursement; and (ii) the lender is not responsible for delays in disbursement attributable to a borrower’s failure to timely provide loan documentation (e.g., executing a promissory note), though loan approvals must be cancelled if required loan documentation is not submitted within 20 calendar days after approval. Moreover, it provides that amounts included in a PPP loan representing refinancing of a SBA Economic Injury Disaster Loan (“EIDL”) must be disbursed directly to the SBA, rather than to the borrower.
This new SBA guidance addresses industry confusion over the manner and timing of PPP loan disbursements. In its initial PPP rulemaking on April 2, 2020, the SBA did not address loan disbursement requirements. As a result, program lenders varied in their loan approval and disbursement timelines.[1] The SBA then addressed the issue in two FAQ responses imposing a requirement that the first disbursement of PPP proceeds occur within 10 business days after loan approval and clarifying the extent to which a lender must have completed underwriting a loan prior to applying for a loan guarantee.[2] Despite the additional guidance, lenders faced uncertainty as to when loan approval occurred (i.e., when the SBA approved the guarantee or when the lender communicated a loan approval to the borrower through its own processes) and as to how to treat loans not fully disbursed as of April 8th or April 14th.
Second, the IFR establishes expectations for lender reporting obligations related to PPP loans. The SBA intends to issue a reporting form (as a PPP-specific version of its normal Form 1502), though the form is not yet available. The form will normally be required to be submitted within 20 calendar days after the PPP loan is approved, or by May 18, 2020 for loans approved before the new form is available. Loans that are cancelled before disbursement or that have been cancelled or voluntarily terminated and repaid after disbursement can be reported to the SBA either through E-Tran or on the new SBA Form 1502, once issued.
Finally, the IFR also clarifies certain circumstances, related to loan disbursements and cancellations, under which a lender will not receive a processing fee. Specifically, a lender will not receive a processing fee where the lender has not fully disbursed loan proceeds, the loan is cancelled before disbursement, or the loan is cancelled or voluntarily terminated and repaid after disbursement. By addressing this issue, the IFR provides guidance related to, among other situations, the potential that a borrower may return PPP funds and ask to cancel the loan as a result of reconsideration of its eligibility or in response to the mere presence of public uproar and scrutiny that has been heightened by recent Treasury statements and press reports regarding PPP implementation to date.
Hopefully, this new color on loan disbursements and reporting and lender compensation will prove helpful for industry participants and borrowers.
[1] Under normal SBA 7(a) requirements, credit may be extended in single-disbursement or multiple-disbursement loans, and must be fully disbursed within 48 months after approval or the SBA guarantee approval will be cancelled.
[2] On April 8th, the SBA indicated that loans must be disbursed within 10 calendar days after loan approval, without further defining when “loan approval” occurred and referring to a “first disbursement,” suggesting that PPP loans may be able to be structured as multiple-disbursement loans; and, on April 14th, the SBA somewhat clarified the required loan approval process by indicating that lenders must have completed their information collection and verification responsibilities under the PPP prior to submitting an application for guarantee through E-Tran, though providing that lenders that had not done so prior to April 14 were required to fulfill such responsibilities “as soon as practicable and no later than loan closing.”
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