April 2, 2020
Authored by: Robert Klingler
Pursuant to the Interim Final Rule published this evening, the SBA has confirmed that banks participating as lenders will have limited liability for the bad acts of their borrowers. This assumes, however that Form 2484, when ultimately published by the SBA, will not contain additional problematic certifications required to be made by the lender.
“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 program criteria; remedies for borrower violations or fraud are separately addressed in this interim final rule.”
With regard to specific underwriting, the Interim Final Rule identifies four specific items:
i. Confirm receipt of borrower certifications contained in Paycheck Protection Program Application form issued by the Administration;
ii. Confirm receipt of information demonstrating that a borrower had employees for whom the borrower paid salaries and payroll taxes on or around February 15, 2020;
iii. Confirm the dollar amount of average monthly payroll costs for the preceding calendar year by reviewing the payroll documentation submitted with the borrower’s application; and
iv. Follow applicable BSA requirements (with more detail provided in the Interim Final Rule).
The Interim Final Rule clarifies that “Each lender’s underwriting obligation under the PPP is limited to the items above and reviewing the “Paycheck Protection Application Form.” Borrowers must submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.”
However, note that the lender must also submit SBA Form 2484 (Paycheck Protection Program Lender’s Application for 7(a) Loan Guaranty). Drafts of the Form 2484 that we’ve seen contain a number of additional eligibility and size of loan determinations, and a number of certifications that go much further than the Interim Final Rule’s limited underwriting obligation.
The Interim Final Rule also makes clear that lenders can rely on borrower documentation when making loan forgiveness decisions. “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.”