Small Business Administration Issues Guidance on Loan Disbursement Under Paycheck Protection Program (“PPP”)
On April 28, 2020, the Small Business Administration (“SBA”) released an interim final rule providing guidance to lenders on loan disbursements under the PPP. The interim final rule provides that from this point on, lenders must disburse PPP loans a one-time full disbursement within 10 calendar days of loan approval. The rule considers loan approval to occur when SBA assigns the loan a loan number. If the last day of the 10-day period falls on a Saturday, Sunday, or legal holiday, the last day of the 10-day period will be the next business day. This guidance requiring a full, one-time disbursement of funds differs from the U.S. Treasury’s FAQ, which suggested that a lender could make multiple disbursements of PPP loan proceeds and was required to make the first disbursement of the loan within 10 calendar days of loan approval. To address this, the final interim rule provides that if a lender has not fully disbursed a loan prior to the issuance of the interim final rule, then the 10 calendar-day period begins on April 28, 2020. Therefore, by May 8, 2020, a lender must fully disburse any PPP loans that have not been fully disbursed if approved on or before April 28, 2020.
The 8‑week covered period for eligible forgiveness begins on the date of the first disbursement. The interim final rule also provides that lenders are not liable for delays in loan disbursement that a borrower causes by failing to deliver to the lender required loan documentation, such as a signed promissory note. If the borrower fails to submit the required loan documentation within 20 calendar days of loan approval, the lender must cancel the loan. Additionally, the interim final rule explains that when a lender is disbursing loan proceeds to refinance an Economic Injury Disaster Loan, the lender must send those loan proceeds directly to SBA and not to the borrower.
As a mechanism for lenders to report on PPP loans and receive their processing fees on fully disbursed loans, SBA will release a SBA Form 1502 specific to PPP loans. The interim final rule provides that lenders must electronically submit the SBA Form 1502 within 20 calendar days after a PPP loan is approved. However, if the loan was approved before SBA released the updated SBA Form 1502, the lender must submit the Form 1502 by May 18, 2020. As of the writing of this article, SBA has not released the SBA Form 1502 specific to PPP loans. On the SBA Form 1502, the lender must indicate whether it has fully disbursed PPP loan proceeds. A lender will only receive its processing fee once it fully disburses loan proceeds and confirms to SBA that the loan has been fully disbursed on the disbursement dates and in the reported amounts. Further, a lender will not receive a processing fee if the loan is cancelled before disbursement or if the loan is cancelled or voluntarily terminated and repaid after disbursement. Lenders must ensure that they report to SBA any loans that have been cancelled before disbursement and any loans that have been cancelled or voluntarily terminated and repaid after disbursement. This report can be made either through Etran Servicing or on the SBA Form 1502.
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.