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Focus Area: Coronavirus/COVID-19

CARES Act Paycheck Protection Program: Use of Agents

A lot of questions have come up about a borrower’s or lender’s use of an “agent” to help the borrower prepare its PPP application or to help the borrower or lender with any other part of the loan processing, monitoring or servicing the loan.  The law says that “agents” will be paid by the lender, out of the lender’s fee.  Does this mean that the lender has to pay an agent if the borrower seeks assistance and then simply informs the lender that it is using an agent?  Is the lender obligated to pay an agent only if the lender has engaged the agent?

The answer is – we don’t know.  The law is ambiguous.  We have received an email update from an SBA representative that, as with other 7(a) loans, an agent’s appointment must be documented on Form 159, “Fee Disclosure Form and Compensation Agreement.”  The form can be found here.

  • The CARES act, which started the PPP process, does not say much about the use of agents for loan preparation and processing other than:
FEE LIMITS. — An agent that assists a borrower to prepare an application for a PPP loan may not collect a fee in excess of the limits established by the SBA.

  • The PPP Lender Information Fact Sheet posted by the U.S. Treasury on Tuesday expanded on the use of agents:

    Who can be an agent? An agent is an authorized representative and can be:
    • An attorney;
    • An accountant;
    • A consultant;
    • Someone who prepares an applicant’s application for financial assistance and is employed and compensated by the applicant;
    • Someone who assists a lender with originating, disbursing, servicing, liquidating, or litigating SBA loans;
    • A loan broker; or
    • Any other individual or entity representing an applicant by conducting business with the SBA.

    How will agents be compensated? Agent
    fees will be paid out of lender fees. The lender will pay the agent. Agents maynot collect any fees from the applicant.

None of this clarified the circumstances under which an agent can require payment from a lender.   Does the statement in the Fact Sheet that “the lender will pay the agent” mean “the lender must pay any agent identified as representing a borrower in connection with putting together the PPP application, even if not hired by the lender”?

Last night, the SBA issued the Interim Final Rule, which says the following:

Who pays the fee to an agent who assists a borrower?

Agent fees will be paid by the lender out of the fees the lender receives from SBA. Agents may not collect fees from the borrower or be paid out of the PPP loan proceeds. The total amount that an agent may collect from the lender for assistance in preparing an application for a PPP loan (including referral to the lender) may not exceed:

  1. One (1) percent for loans of not more than $350,000;
  2. 0.50 percent for loans of more than $350,000 and less
    than $2 million; and
  3. 0.25 percent for loans of at least $2 million.

The Act authorizes the Administrator (i.e. the SBA) to establish limits on agent fees. The Administrator, in consultation with the Secretary, determined that the agent fee limits set forth above are reasonable based upon the application requirements and the fees that lenders receive for making PPP loans.

The Interim Final Rule also does not clarify under what circumstances a lender will be required to pay an agent out of the fee it receives from the SBA.  This is unfortunate, because ambiguity leads to fights. Note that the amounts listed above are maximums.  Nothing in the law so far says that the lender must agree to pay the maximum.

The SBA released the “final” PPP Loan Application last night.  The Loan Application does not clarify the circumstances under which a lender is required to pay an agent. 

The SBA also released the Lender Application form to be submitted with each PPP Loan Application to seek the SBA guaranty. The Lender Application includes a question that may provide support for the position that lenders are only required to share the loan fees if the lender has engaged the agent.  However, this is in no way definitive.  Further, an application form does not have the legal force of a statute or a rule.

K. Fees (If yes, Lender may not pass any agent fee through to the Applicant or offset or pay the fee with the proceeds of this loan)

  • Is the Lender using a third party to assist in the preparation of the loan application or application materials, or to perform other services in connection with this loan?

The bottom line is that if a borrower engages an agent to help it put together a PPP application, and the agent sends the lender a bill demanding payment, we do not know how a court would interpret the PPP rules if this were to end up in litigation.  If a lender wants certainty, as part of the loan process it can ask borrowers if they have engaged an agent to assist with the application.  If a borrower says “yes,” or if an agent notifies a lender that it has been engaged by a borrower, the lender may want to simply require an “agent agreement” between the lender and the agent.  If the SBA does not mandate an agent form (which is possible, as discussed below), WBA will be circulating a form that lenders can use for this purpose. 

What we want to try to avoid is having persons come forward out of the blue representing that they helped a borrower with a loan and demanding money.  At minimum, a lender presumably wants to know if it undertakes a loan with a borrower whether or not the borrower has an agent that may need to be paid.

As discussed above, an SBA representative has told us in an email that it will require the lender to have in place the SBA Form 159, “Fee Disclosure Form and Compensation Agreement,” to document the sharing of fees.  This form is signed by the borrower, the lender and the agent.  

DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

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