New Interim Final Rule on PPP Borrower and Lender Disbursements
Disbursement of PPP Loan Proceeds
Questions persist regarding how loans under the Paycheck Protection Program (“PPP”) are to be funded by lenders. Specifically, some Borrowers have sought multiple draws hoping to achieve greater flexibility over the start of the eight week period that may be covered by the PPP loan forgiveness. Under a new interim final rule issued on April 28, 2020, the SBA has confirmed its earlier guidance that lenders must make a one-time, full disbursement of the PPP loan within ten calendar days of loan approval. For the purposes of this rule, a loan is considered approved when the loan is assigned a loan number by SBA.
For loans that received an SBA loan number prior to April 28, 2020, but have not yet been fully disbursed, the following transition rules apply:
- The ten calendar-day period described above begins on April 28, 2020.
- The eight-week covered period began on the date of first disbursement.
The rule also provides that lenders are not responsible for delays in disbursement attributable to a borrower’s failure to timely provide required loan documentation, including a signed promissory note. However, for those borrowers hoping to delay the start of the eight week covered period by withholding the return of their signed promissory note, the rule significantly closes the available window of flexibility. Under the interim final rule, loans for which funds have not been disbursed because a borrower has not submitted required loan documentation within 20 calendar days of loan approval shall be cancelled by the lender, subject to the transition rules above.
Disbursement of Lenders’ Loan Fees
Although the PPP has no borrower application fee, the CARES Act provides that participating lenders shall receive fees from the SBA ranging from 5% of the loan amount for loans of not more than $350,000 to 1% for loans of not less than $2,000,000. The interim final rule for the first time establishes the process for such fees to be paid.
Under the rule, the SBA will make available a specific SBA Form 1502 reporting process through which PPP lenders will report on PPP loans and collect the processing fee on fully disbursed loans to which they are entitled. Lenders must electronically upload SBA Form 1502 information within 20 calendar days after a PPP loan is approved or, for loans approved before availability of the updated SBA Form 1502 reporting process, by May 18, 2020. The lender must report on SBA Form 1502 whether it has fully disbursed PPP loan proceeds.
The rule also establishes three circumstances when no fee will be paid:
- prior to full disbursement of the PPP loan;
- if the PPP loan is cancelled before disbursement; or
- if the PPP loan is cancelled or voluntarily terminated and repaid after disbursement (including if a borrower repays the PPP loan proceeds under the May 7, 2020 safe harbor provision confirming the borrower’s good faith certification of the necessity of the PPP loan for continued operations).
In establishing this new interim final rule, the SBA determined that requiring lenders to report on disbursement within 20 calendar days of loan approval ensures that disbursement of funds to eligible borrowers will occur more rapidly and would enhance SBA’s ability to track program data. The rule is effective immediately.