Borrower/lender disagreements in PPP loan forgiveness applications | Epstein Becker & Green

As we wrote recently, the Paycheck Protection Program (“PPP”) has been critical in helping small businesses stay afloat amid the COVID-19 pandemic and resulting government restrictions on trade. By now, most borrowers know that a crucial step in ensuring they maintain Congressional benefits is to apply for PPP loan forgiveness. Unfortunately, in the process of applying for forgiveness, some borrowers have run into difficulties when their lenders disagree that they have the right to ask for forgiveness of the full amount of their PPP loans. In 2021the United States Small Business Administration (“SBA”) has provided a partial solution to this problem by creating the PPP Direct Forgiveness Portal.

As the name suggests, the PPP Direct Forgiveness portal allows borrowers to apply for PPP loan forgiveness directly through the SBA, bypassing their lenders. However, the PPP Direct Forgiveness portal was not a complete solution. First, it only applies to loans of $150,000.00 or less. Second, lenders still had to “register” to allow their borrowers to use the PPP Direct Forgiveness portal. Some lenders chose not to do so, thus forcing their borrowers to continue to seek forgiveness through their lenders, even when borrowers and lenders disagreed on the amount of forgiveness at which borrowers are entitled. (The SBA has published a list of participating lenders here.) And third, even when the PPP Direct Forgiveness Portal is used by a borrower, the lender must still review the forgiveness request and provide their own forgiveness recommendation to the SBA.

More recently, the SBA released Procedural Notice 5000-827666 (the “Notice”) to further address the issue of borrower-lender disagreements in PPP loan forgiveness applications. According to the advisory, when a lender instructs the borrower to request forgiveness for an amount less than the full loan amount and the SBA issues a forgiveness payment following the lender’s partial approval decision, the lender must inform the borrower that the borrower has 30 days to request, through the lender, an SBA loan review of the lender’s partial approval decision. If the borrower requests such a review, the lender must notify the SBA within 5 days of the borrower’s request. If, upon SBA’s review, it determines that the borrower is eligible for a remission in an amount greater than the amount for which the lender instructed the borrower to apply, the SBA will issue a payment of additional discount to make up the difference. It is important to note that if the borrower has already started making payments on the PPP loan and the SBA loan review results in full forgiveness, the lender is obligated to repay all payments made by the borrower. The notice also encourages lenders to work with their borrowers to amicably resolve any disputes regarding lenders’ partial approval decisions.

While the notice is a step in the right direction for borrowers, borrowers should be aware that it does not require the SBA to review a lender’s partial approval decision. Once a borrower requests an SBA loan review pursuant to the notice, it is at the sole discretion of the SBA whether or not to proceed with the review. Additionally, even if the SBA agrees to review a lender’s partial approval decision at the request of a borrower, the borrower is obligated to continue making payments on the loan balance, and the loan does not is not deferred.

If you are a PPP borrower and your lender forces you to request forgiveness for less than you think you are entitled to, you should consider hiring an experienced attorney to guide you through the forgiveness process and explore your options. A lawyer can also help you contact your lender to try to resolve any disagreements over the amount of loan forgiveness, especially if you haven’t been able to get your lender’s attention on your own.

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