SBA Clarifies PPP Disbursement Rules for Financial Institutions
On April 28, 2020, the U.S. Small Business Administration (SBA) issued a fourth interim final rule that addresses disbursement and related notification requirements for financial institutions making Paycheck Protection Program (PPP) loans. Previous guidance required funds to be funded within 10 days of loan approval. This new rule mandates a single disbursement of funds. In addition, a borrower’s failure to submit required documentation within 20 days of loan approval can result in cancellation by the lender. The financial institution must submit SBA Form 1502 within 20 days of loan disbursement to receive its processing fee.
The interim final rule is effective upon publication in the Federal Register.
Can a borrower take multiple draws from a PPP loan and thereby delay the start of the eight-week covered period?
No. The lender must make a one-time, full disbursement of the PPP loan within 10 calendar days of loan approval; a loan is considered approved when the loan is assigned a loan number by the SBA. For loans that received an SBA loan number prior to this interim final rule but have not yet been fully disbursed, the following transition rules apply:
- The 10 calendar-day period begins on April 28, 2020
- The eight-week covered period began on the date of the first disbursement. 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. 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 canceled by the lender. When disbursing loans, lenders must send any amount of loan proceeds designated for the refinance of an economic injury disaster loan directly to the SBA and not to the borrower
By when must a lender electronically submit an SBA Form 1502 indicating that PPP loan funds have been disbursed?
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. 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. A lender will not receive a processing fee in any of the following situations:
- Prior to full disbursement of the PPP loan
- If the PPP loan is canceled before disbursement
- If the PPP loan is canceled or voluntarily terminated and repaid after disbursement (including if a borrower repays the PPP loan proceeds to conform to the borrower’s certification regarding the necessity of the PPP loan request)
In addition to providing ACH credit information to direct payment of the requested processing fee, lenders will be required to confirm that all PPP loans for which the lender is requesting a processing fee have been fully disbursed on the disbursement dates and in the loan amounts reported. A lender must report through either E-Tran Servicing or the SBA Form 1502 any PPP loans that have been canceled before disbursement or that have been canceled or voluntarily terminated and repaid after disbursement.
BKD will continue to follow this developing situation. As with most topics related to COVID-19, changes are being made rapidly. Please note that this information is current as of the date of publication. Visit BKD’s COVID-19 Resource Center to learn more. If you have questions, contact your BKD Trusted Advisor™ today.