Interim Final Rule on the Paycheck Protection Program

“To improve is to change, to be perfect is to change often.” – Winston Churchill

If there is one thing we all know about the SBA Paycheck Protection Program, it’s that the only thing constant is change. From origination to forgiveness, lenders have had an exceedingly difficult time tracking and adhering to all of the program guidelines changes. With more than 28 links for resources for the program on SBA’s website alone, it can be a tangled web of understanding. So, what does this latest rule to the program mean for lenders?

With the latest Interim Final Rule (IFR) released on June 22nd, this provides another layer of policy to adhere to during review. While the list of changes is fairly long, here are some of the most impactful and what they mean.

New Loan Forgiveness Application, SBA Form 3508EZ

With the release of this form, this simplifies the information required for borrowers to complete for their request for forgiveness. As seasoned SBA lenders are familiar with, SBA forms can be confusing for small businesses. The simplified form should help relieve the amount of calls they may have to field with confused business owners as well as the information to review. In short this should help expedite the process for all involved.

Five-year Loan Term

Allows for the extension of the loan maturity term from the original two years to five years. While this specifically is for loans approved by SBA on or after June 5th, it also allows for the extension to apply to existing loans where the lender and borrower mutually agree. Also added to the allowable changes in terms, is the ability to extend the deferral period from six to 10 months after the last day of the covered period. These are all great things, however this would typically require a change in terms to the original note that would include a request from the borrower, a review of the request, a recommendation to approve, and then documentation of the mutually agreed on change in terms. Where this should be a quick review process, lenders will need to balance between what has been revised for PPP guidelines, what their normal process is for a change in terms, and what SBA’s regular servicing and liquidation SOP guidelines state. It’s a balancing act to determine what that prudent lending practice should be. Not to mention, capturing this transaction for historical preservation should this be requested by auditors either from SBA or their federal regulators.

Advance Purchase Provision

Deleted from the previous provision in IFR 15, the SBA will issue additional procedures on the process for the advance purchase of PPP loans. While this puts a stop to the lender receiving advance payment on the guaranty, it was a great decision. After the review of the number of requests it seems as if they may have realized this provision would cause extra work for everyone involved and a payment processing nightmare for the lenders. Had they received advanced payment; they would then share in the borrower payments received based on the guaranty amount (in this case 100%) which requires sending individual payment for each loan to the SBA Denver Finance Center with the required form.

Of course, I would be remised if I failed to address the elephant in the room, SBA’s announcement of an API they released for forgiveness submissions. While E-tran had several breakdowns during the inundation of loan requests at the roll out of this program, they realized the true need to support their hardworking SBA team members in the servicing offices who will be tasked with reviewing these requests. Not to mention assisting the lenders who may have made thousands of loans (literally).

Documentation of these processes are key in normal SBA lending and with the special SBA programs previously funded like the ARRA ARC loans. With the roll out of the new API and SBA’s Procedural notice for Forgiveness decision and Loan review, we will patiently wait to see what happens next. Stayed tuned for our next episode of PPP updates after we navigate the submission of these loans.

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SBA PPP Resources from Baker Hill

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Author Bio

As the Director of Implementation Analysts at Baker Hill, Jennifer Foraker manages the team that implements Baker Hill NextGen®. She collaborates with clients and internal teams to give knowledgeable insights into Baker Hill NextGen® product capabilities and functionality throughout the implementation process. With more than 20 years in the banking industry responsible for both consumer and small business processes for banks of all sizes and previously serving as a Loan Operations Manager, Jennifer’s areas of expertise include small business loans, SBA lending, construction loans, operations management, regulatory documentation and portfolio management.