Updated February 24, 2022

Update: On January 27, 2022, the Small Business Administration (“SBA”) issued SBA Procedural Notice 5000-82766, SBA Loan Reviews of Paycheck Protection Program Lender Partial Approval Forgiveness Decisions (“2022 Notice”), that outlined a new process to allow Paycheck Protection Program (“PPP”) borrowers to request an SBA loan review of partial approval forgiveness decisions issued by their PPP lenders. See “New Process For Borrower Requests for SBA Loan Review of Partial Approval Forgiveness Decisions” below. Borrowers that received other denial forgiveness decisions from their lenders may continue to follow the process outlined below and in our other articles.

Lenders play a large role in the PPP loan forgiveness review and appeals process.

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act” or “PPP2 Act”), forgiveness application forms, and the Interim Final Rule on Loan Forgiveness Requirements and Loan Review Procedures as Amended by Economic Aid Act, as amended (“Forgiveness and Loan Review IFR”), posted by SBA in consultation with the Department of Treasury (“Treasury”), raise questions related to PPP loan forgiveness.

To explore the latest information, we created a four-part series that may offer some insight into the latest updates:

• Initial Takeaways and Agency Guidance for the Latest PPP Updates
• Grounds for SBA Review, the SBA Loan Review Process, and Borrower Items
• The Lender’s Role in the PPP Loan Review Process
• What to Know about PPP Appeals and Next Steps

Understanding the lender’s role in the PPP loan forgiveness review process may offer clarity for borrowers in seeking forgiveness, and this is outlined in the article below.

Lender’s General Role in Review Process

In General: Borrowers bear sole responsibility for providing accurate calculations of the loan forgiveness amount and for attesting to the accuracy of information in the loan forgiveness application. The lenders are expected to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness.

SBA provides the following examples: Minimal review of calculations based on a payroll report by a recognized third-party payroll processor would be reasonable. By contrast, if payroll costs are not documented with such recognized sources, more extensive review of calculations and data would be appropriate. The borrower will not receive forgiveness without submitting all required documentation to the lender.

SBA emphasizes that the lenders may rely on borrower representations. If the lender identities errors in the borrower’s calculations or if there is a material lack of substantiation in the borrower’s supporting documentation, the lender is to work with the borrower to remedy the issue. However, the lenders are not required to independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.

Forms: The lender’s review depends on the type of loan forgiveness application.

• Form 3508: When a borrower submits to its lender SBA Form 3508 or the lender’s equivalent loan forgiveness application form, the lender must (i) confirm receipt of the borrower’s certifications contained in the form; (ii) confirm receipt of the documentation the borrower must submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the form; (iii) confirm the borrower’s calculations on the forms, including the dollar amount of the (A) Cash Compensation, Non-Cash Compensation, and Compensation to Owners claimed on Lines 1, 4, 6, 7, 8, and 9 on PPP Schedule A and (B) Business Mortgage Interest Payments, Business Rent or Lease Payments, Business Utility Payments, Covered Operations Expenditures, Covered Property Damage Costs, Covered Supplier Costs, and Covered Worker Protection Expenditures claimed on Lines 2 through 8 on the PPP Loan Forgiveness Calculation Form, by reviewing the documentation submitted with the SBA Form 3508 or lender’s equivalent form; and (iv) confirm that the borrower made the calculation on Line 14 of the SBA Form 3508 or lender’s equivalent form correctly, by dividing the borrower’s Eligible Payroll Costs claimed on Line 1 by 0.60.
• Form 3508EZ: When the borrower submits SBA Form 3508EZ or the lender’s equivalent form, the lender must (i) confirm receipt of the borrower certifications contained in the Form 3508EZ or lender’s equivalent form; (ii) confirm receipt of the documentation the borrower must submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the SBA Form 3508EZ or lender’s equivalent form; (iii) confirm the borrower’s calculations on the borrower’s SBA Form 3508EZ or lender’s equivalent form, including the dollar amount of the Payroll Costs, Business Mortgage Interest Payments, Business Rent or Lease Payments, Business Utility Payments, Covered Operations Expenditures, Covered Property Damage Costs, Covered Supplier Costs, and Covered Worker Protection Expenditures claimed on Lines 1 through 8 of the SBA Form 3508EZ or lender’s equivalent form, by reviewing the documentation submitted with the SBA Form 3508EZ or lender’s equivalent form; and (iv) confirm that the borrower made the calculation on Line 11 of the SBA Form 3508EZ or lender’s equivalent form correctly, by dividing the borrower’s Eligible Payroll Costs claimed on Line 1 by 0.60.
• Form 3508S: When a borrower submits SBA Form 3508S or the lender’s equivalent form, the lender must: (i) confirm receipt of the borrower certifications contained in the SBA Form 3508S or lender’s equivalent form; and (ii) in the case of a Second Draw PPP Loan for which the borrower did not provide documentation of revenue reduction with its application and the lender did not conduct a review of the documentation at the time of application, confirm the dollar amount and percentage of the borrower’s revenue reduction by performing a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning the borrower’s revenue reduction.

Lender’s Timeline

Upon receiving a borrower’s loan forgiveness application (either through the lender’s forgiveness process or the Direct Borrower Forgiveness process), the lender is responsible for conducting the review procedures and issuing a decision to SBA regarding loan forgiveness. A lender must issue a decision to SBA on a loan forgiveness application not later than 60 days after receipt of a complete loan forgiveness application from the borrower. The lender is required to submit its forgiveness decision to SBA through the Paycheck Protection Platform (“Platform”). When submitting its forgiveness decision, the lender can choose the following categories to report the decision to SBA and request a forgiveness remittance:

1. Approved in Full – the lender approved in full the forgiveness amount requested by the borrower, and the forgiveness amount requested by the lender equals that amount. (This choice applies where the amount of forgiveness requested by the borrower is less than the amount of the loan if the lender approves the full amount of the borrower’s request for partial forgiveness.)
2. Approved in Part – the lender did not approve the full forgiveness amount requested by the borrower and the forgiveness amount requested by the lender is less than the forgiveness amount requested by the borrower.
3. Denied – the lender denied the entire forgiveness amount requested by the borrower.

In addition, if directed by SBA, the lender may issue a denial without prejudice due to pending SBA review of the loan for which forgiveness is sought. In the case of a denial without prejudice, the borrower may subsequently request that the lender reconsider its application for loan forgiveness, unless SBA has determined that the borrower is ineligible for a PPP loan.

In all cases where the lender selects “Approved in Part,” the lender must enter its own data in the Platform for each forgiveness line-item for which it determined a different amount than the amount on the borrower’s loan forgiveness application.

While SBA receives borrower’s signed loan forgiveness application form (either directly from the borrower or through the lender) before forgiveness remittance, SBA does not request supporting documentation unless SBA selects the loan for an SBA loan review. Additionally, when a lender issues a partial approval forgiveness decision to SBA, the borrower does not have a right to appeal to SBA Office of Hearings and Appeals (“OHA”) unless SBA selects the loan for an SBA loan review and issues an appealable final SBA loan review decision.

New Process when Borrower Requests SBA Loan Review of Partial Approval Forgiveness Decisions

Under the Forgiveness and Loan Review IFR, SBA may review any PPP loan, of any size at any time, at its discretion. As part of the process, SBA receives inquiries from borrowers that were granted partial forgiveness of their PPP loans because (1) their lender issued a partial approval decision to SBA on the borrower’s loan forgiveness application, or (2) their lender required the borrower to apply for forgiveness in an amount less than the full amount of the PPP loan. As a result of these inquiries, SBA issued the 2022 Notice to allow borrowers that disagree with a partial approval decision they received from their lender or that were required by their lender to apply for forgiveness in an amount less than the full amount of the PPP loan to request, through their lender, an SBA review of their loan.

The new process is as follows:

• Required Lender Notification of Borrower’s Right to Request SBA Loan Review – When SBA remits a forgiveness payment to the lender, the lender is required to notify the borrower of the remittance within five business days of receipt. If the lender issues a partial approval decision to SBA and SBA remits the full amount approved by the lender, the lender’s notification to the borrower must include the lender’s partial approval decision, including the reason(s) why the lender approved forgiveness in part but not in full. (See SBA Procedural Notice 5000-20077, “Paycheck Protection Program Borrower Resubmissions of Loan Forgiveness Applications Using Form 3508S, Lender Notice Responsibilities to PPP Borrowers, and Offset of Remittances to Lenders for Lender Debts,” issued January 15, 2021 (“Lender Responsibilities Notice”).) If SBA did not select the PPP loan for an SBA loan review and did not issue a final SBA loan review decision, the lender’s notification to the borrower must not indicate that has SBA issued a loan review decision and must not indicate that the borrower may appeal the lender’s decision to OHA (because borrower has no such appeal right to OHA in this circumstance).
  • Starting on the effective date of the 2022 Notice: When a lender receives a forgiveness remittance from SBA on a partial approval decision, the lender’s post-forgiveness remittance notification must inform the borrower that the borrower has 30 calendar days from receipt of the notification to seek, through the lender, an SBA loan review of the lender’s partial approval decision.
  • Within 30 calendar days of the date of the 2022 Notice: Lenders must notify all of their borrowers on loans that previously received a partial forgiveness remittance from SBA as a result of the lender’s partial approval decisions that the borrower has 30 calendar days from receipt of the lender notification to seek, through the lender, an SBA loan review of the lender’s partial approval decision.
  • Within five calendar days of a lender’s receipt of a borrower’s timely request for an SBA loan review: The lender must notify SBA through the Platform. The lender’s notice to SBA of the borrower’s timely request for review must include a copy of the lender’s prior notice to the borrower of the reason(s) for the lender’s partial approval decision. SBA reserves the right to review the lender’s decision in its sole discretion.
• If SBA Selects the Loan for Review As A Result of the Borrower’s Request: The borrower must continue to make payments on the remaining balance of the loan and the loan is not deferred. (While a timely OHA appeal of a final SBA loan review decision extends a deferment of loan payments, SBA’s granting of a borrower’s request for an SBA loan review of a partial forgiveness decision is not an OHA appeal and payments are not deferred during SBA loan review or any subsequent appeal.)
• SBA Guidance – SBA will be providing the lenders with additional guidance to be posted on the Platform, including step-by-step instructions that will describe the process for lenders to notify SBA through the Platform of a borrower’s request for an SBA loan review of a lender’s partial approval process.
• SBA Loan Reviews of Lender Partial Approval Forgiveness Decisions: When SBA, in its sole discretion, selects a loan for an SBA loan review as a result of a borrower’s request on a lender’s partial approval decisions, the lender will receive a notice that SBA is reviewing the loan. SBA loan review will be conducted in accordance with the procedures in the Forgiveness and Loan Review IFR. Under the Forgiveness and Loan Review IFR, SBA may review borrower eligibility, PPP loan amounts and use of proceeds, and loan forgiveness amounts. Borrowers should be aware that if SBA undertakes a loan review at borrower’s request, SBA may determine that the borrower is entitled to forgiveness in an amount less than what the lender decided (including zero if, for example, the borrower is determined to be ineligible for the PPP loan), an amount more than what the lender decided, or the same amount as the lender decided. When SBA completes a borrower-requested loan review of a lender’s partial approval decision, SBA may send a final SBA loan review decision to the lender as outlined in the next paragraph. Any final SBA loan review decision that is appealable to OHA by the borrower will include a notice of the borrower’s right to appeal the decision in accordance with SBA final rules of appeal.
• SBA Forgiveness Payment Remittances as a Result of Partial Approval Loan Reviews: If SBA determines, as a result of SBA loan review, that the borrower is entitled to forgiveness in an amount greater than the lender’s partial approval decision and SBA has previously remitted a partial forgiveness payment to the lender, SBA will remit an additional forgiveness payment to the lender to make up the difference. SBA will issue an additional Notice of Paycheck Protection Program Forgiveness Payment (“Payment Notice”) to the lender. If SBA loan review results in a higher forgiveness amount, but less than full forgiveness, SBA will also issue a final SBA loan review decision to the lender. The lender must provide a copy of the Payment Notice and, if applicable, the final SBA loan review decision, to the borrower within five business days of the remittance and comply with applicable requirements of the Lender Responsibilities Notice.
  • If a borrower has begun making payments on their loan and SBA loan review results in full forgiveness, the lender must refund all payments made by the borrower.
  • If SBA loan review results in a higher forgiveness amount, but less than full forgiveness, the lender must re-amortize the PPP loan and refund any excess payments made by the borrower.
  • If SBA determines, as a result of SBA loan review, that the borrower is entitled to forgiveness in an amount equal to the partial forgiveness amount previously remitted to the lender, SBA will issue a Payment Notice to the lender confirming that SBA loan review has resulted in no change to the previous remittance amount. Within five business days of receipt of the confirming Payment Notice from SBA, the lender must provide the borrower with a copy of the confirming Payment Notice, and comply with applicable requirements of the Lender Responsibilities Notice.
  • If SBA determines, as a result of SBA loan review, that the borrower is entitled to forgiveness in an amount less than the partial forgiveness amount previously remitted by SBA to the lender, SBA will issue a final SBA loan review decision to the lender. Upon receipt of the final SBA loan review decision, the lender must comply with the requirements of the Lender Responsibilities Notice. Additionally, the lender must remit to SBA the excess amount of the forgiveness payment previously made by SBA and re-amortize the PPP loan to account for the difference.
• Lender Dialogue with Borrowers Encouraged: As noted in the Forgiveness and Loan Review IFR, when reviewing a borrower’s forgiveness application, if a lender identifies errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documents, the lender should work with the borrower to remedy the issue. The lenders are encouraged to work with borrowers that have requested an SBA loan review of a partial approval decision to determine whether the borrower and the lender can come to a resolution of the issue(s) that resulted in the partial approval, if appropriate. If, as a result of this process, the lender determines that the borrower is entitled to forgiveness in an amount that exceeds the amount requested in the borrower’s original forgiveness application, the lender must obtain from the borrower a signed corrected PPP Loan Forgiveness Application (SBA Form 3508, 3508EZ, or 3508S, as applicable, or the lender’s equivalent) and supporting documentation (if required). Upon receipt of the signed corrected forgiveness application and supporting documentation, the lender may submit a forgiveness payment correction request to SBA through the Platform. The forgiveness payment correction request must include the signed corrected forgiveness application and supporting documentation and an explanation of the lender’s reason(s) for requesting the forgiveness payment correction. SBA will review the forgiveness payment correction request and determine, in SBA’s sole discretion, whether to grant the request. Lenders are encouraged to work with borrowers that received partial approval decisions to allow for maximum flexibility in repayment of the remaining balance of the loan. Lenders should consult SOP 50 57 2, 7(a): Loan Servicing and Liquidation for applicable SBA Loan Program Requirements regarding loan modifications, including extensions of maturity.

Lender’s Receipt That SBA Is Reviewing the Loan
If SBA undertakes a review, SBA will notify the lender in writing and the lender must notify the borrower in writing within five business days of receipt. The lender must also transmit certain documents to SBA, and the lender must request that the borrower provide the lender with applicable documentation that the instructions to the form instruct the borrower to maintain but not submit.

If SBA has notified the lender that SBA has commenced a loan review, the lender should issue a forgiveness decision to SBA not later than 60 days after receipt of the complete loan forgiveness application from the borrower, unless otherwise directed by SBA.

Lender’s Approval of Forgiveness
If the lender issues a decision to SBA approving the application (in whole or in part), the lender must provide SBA with certain documentation. The lender must confirm that the information the lender provided to SBA accurately reflects the lender’s records for the loan, and that the lender has made its decision in accordance with the requirements in the 2021 Forgiveness and Loan Review IFR. If the lender determines that the borrower is entitled to forgiveness of some or all of the amount applied for under the statute and applicable regulations, the lender must request payment from the SBA at the time the lender issues its decision to the SBA.

SBA will, subject to any SBA review of the borrower’s loan(s) or loan application(s), remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, not later than 90 days after the lender issues its decision to SBA. The EIDL Advance Amount will not reduce the amount of the forgiveness. The lender is responsible for notifying the borrower of remittance by SBA of the loan forgiveness amount (or that SBA determined that no amount of the loan is eligible for forgiveness) and the date on which the borrower’s first payment is due, if applicable.

Lender’s Denial of Forgiveness in Whole or in Part
If the lender issues a decision to SBA determining that the borrower is not entitled to forgiveness in any amount, the lender must provide SBA with the reason for the denial and certain documentation. The lender must confirm that the information the lender provided to SBA accurately reflects the lender’s records for the loan, and that the lender has made its decision in accordance with the requirements in the 2021 Forgiveness and Loan Review IFR.

The lender must also notify the borrower in writing that the lender has issued a decision to the SBA denying the loan forgiveness application and provide SBA with a copy of the notice. The notice to the borrower must include the reasons that the lender concluded that the borrower is not entitled to loan forgiveness in any amount and inform the borrower that the borrower has 30 calendar days from receipt of the notification to seek, through the lender, SBA review of the lender’s decision. SBA reserves the right to review the lender’s decision in its sole discretion.

Borrower’s Request for Review of Lender’s Decision

Within 30 days of notice from the lender, a borrower may notify the lender that it is requesting that SBA review the lender’s decision in accordance with the 2021 Forgiveness and Loan Review IFR. Within five days of receipt, the lender must notify SBA of the borrower’s request for review.

• SBA Declines Borrower’s Request for Review: SBA will notify the lender if SBA declines a request for review. If the borrower does not timely request SBA review of the lender’s initial decision or if the SBA declines the request for review, the lender is responsible for notifying the borrower of the date on which the borrower’s first payment is due.
• SBA Accepts Request for Review: If SBA accepts the borrower’s request for review, SBA will notify the borrower and the lender of the results of the review.

SBA Denies Forgiveness

Similarly, if SBA denies forgiveness in whole or in part, the lender is responsible for notifying the borrower of the date on which the borrower’s first payment is due. SBA is entitled to use the statutory 90-day review period.

To learn more about PPP appeals, please view the next article in our After the Economic Aid Act: An Updated Guide to the PPP Loan Forgiveness Review and Appeals Process series, “What to Know about PPP Appeals and Next Steps‎.”

This article summarizes aspects of the law relevant to the PPP; it does not constitute legal advice. For legal advice for your situation, you should contact an attorney.