The United States Small Business Administration (the “SBA”) recently issued important new guidelines (SBA Procedural Notice 5000-812316, SBA Guaranty Purchases and Lender Servicing Responsibilities, effective July 15, 2021 (the “SBA Servicing Guidance “)) concerning the servicing of loans granted under the Paycheck Protection Program, which was originally established under the Coronavirus Aid, Relief and Economic Security Act (âPPP loansâ). The purpose of SBA Servicing Guidance is to strengthen certain service responsibilities that lenders have with respect to PPP loans under existing SBA rules and regulations (collectively, the âProgram Requirementsâ)., and inform lenders of the collateral purchase process required for the SBA to honor its 100% collateral on each PPP loan.
The SBA Servicing Guidance provides further clarification and guidance on a number of scenarios that commonly arise in the context of PPP loan management and liquidation.
In this regard, the SBA Servicing Guidance provides that the primary service responsibility of a lender is to work with the borrower under each PPP loan to request full loan forgiveness in accordance with applicable program requirements within ten months. following the end of the period covered by the applicable PPP loan forgiveness; or, in the event of a default or other qualifying event, request the SBA to honor its 100% PPP loan repayment guarantee and charge any remaining PPP loan balance in accordance with the procedures set out in the Maintenance Guide. of the SBA. The SBA Servicing Guidance lists the service responsibilities that SBA expects from every PPP lender to adhere to. It is important to note that the SBA Servicing Guidance (i) makes it clear that the lender must service every PPP loan until it is fully canceled, paid in full or written off and (ii) provides that if a borrower becomes more than 60 days past due in repayment of a PPP loan that has not been fully canceled, the lender must request the SBA to make a collateral purchase of the secured balance of the PPP loan and debit the balance not recovered through the use of the SBA’s PPP platform.
The SBA service guide also provides that if a borrower under a PPP loan has filed for bankruptcy after the disbursement of a PPP loan, unless the loan has been fully canceled and the bankruptcy proceeding is not an assetless proceeding, the lender must provide the SBA with a notice of bankruptcy filing; file proof of claim; and continue to follow the procedure. However, the SBA has now indicated that it generally does not expect lenders to take action in bankruptcy proceedings beyond the minimum steps above, and will only approve legal fees associated with bankruptcy. only if the SBA determines, after reviewing a litigation plan submitted by the lender, that the legal fees that would be incurred are profitable in the context of any expected recovery. These clarifications included in the SBA Servicing Guidance offer a different approach to dealing with bankrupt borrowers than the approach required to deal with bankruptcy filings by borrowers more broadly in Loan Program 7 (a) (of which PPP loans are a part). ). Nonetheless, the SBA Servicing Guidance suggests that there may be circumstances in which lenders should be prepared to take additional action, in coordination and with the approval of the SBA. Lenders will need to assess different situations when deciding whether to seek approval for further action and what is reasonably required in order to continue to monitor bankruptcy proceedings, but it is helpful that the SBA has clarified that, in many circumstances, no action beyond the described steps will be necessary or appropriate.
The SBA Servicing Guidance lists the circumstances under which the lender can ask the SBA to honor its guarantee and get a PPP loan written off. Notably, these circumstances include most bankruptcy proceedings where the court issues an order confirming a reorganization plan that does not provide for 100 percent repayment of the debt under the PPP loan. The SBA Servicing Guidance also indicates the circumstances under which the lender can ask SBA to honor its guarantee without charging the balance. This would most often occur when the borrower has appealed a pardon decision and that appeal is pending before the SBA’s Hearings and Appeals Office.
The SBA Servicing Guidance also describes what a lender must do if the borrower of a PPP loan submits a forgiveness request after the lender submits an SBA request to honor their collateral, and describes how lenders are to submit claims. SBA requests to honor its collateral and the cancellation of a PPP loan using the SBA platform. In particular, full instructions for using the SBA platform in this context are not included in the Notice and will be published at a later date.
Finally, the SBA Servicing Guidance makes it clear that SBA will honor its guarantee and purchase 100 percent of the outstanding balance of a PPP loan only if the lender has complied with the program requirements, including applicable underwriting requirements and loan requirements. document collection and record keeping. Although the charges imposed on lenders at the start of the PPP loan program were minimal, the SBA Servicing Guidance makes it clear that lenders must strictly adhere to the requirements for maintaining the service of PPP loans.
The SBA Servicing Guidance provides useful new information that should help lenders determine other PPP loan servicing actions, including how to proceed in the context of borrower bankruptcy filings.
 The Paycheck Protection Program (as amended, the “PPP”) was established under Division A, Title I, of the CARES Act and was subsequently amended in accordance with the Paycheck Protection Program and to the Health Care Improvement Act, Pub. L. 116-139, April 24, 2020, Paycheck Protection Program Flexibility Act 2020, Pub. L. 116-142, June 5, 2020, the Consolidated Appropriations Act, 2021, Pub. L. 116-260, January 27, 2021, American Rescue Plan Act of 2021, Pub. L. 117-2, March 11, 2021 and PPP Extension Act of 2021, Pub. L. 117-6, March 30, 2021.
 âProgram Requirementsâ means all SBA regulations and guidelines under the CARES Act, Paycheck Protection Program Flexibility Act, Economic Aid Act, Section 7 (a) (36) and (37) of the Small Business Act, any of the rules or guidelines issued by the SBA implementing the PPP, including any rule, frequently asked question or other requirement to applicable SBA loan, as defined in 13 CFR Â§ 120.10, et. that is.