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CARES Act: SBA Provides Lender Guidance on PPP Disbursements and Sales of PPP Loans
Practical Law Legal Update w-025-3602 (Approx. 5 pages)
CARES Act: SBA Provides Lender Guidance on PPP Disbursements and Sales of PPP Loans
by Practical Law Finance
| Published on 05 May 2020 • USA (National/Federal) |
The Small Business Administration (SBA) provided guidance to lenders on sales of Payroll Protection Program (PPP) loans to other PPP lenders. It also issued an interim final rule (IFR) specifying timing and reporting requirements for lenders for PPP loan disbursements.
On March 27, 2020, the US government passed the CARES Act in response to the COVID-19 crisis. Under the CARES Act, the Small Business Administration (SBA) is offering loans under the Paycheck Protection Program (PPP). On April 2, 2020, the SBA issued an interim final rule (Initial Rule) outlining the key provisions for implementing the PPP. The SBA has issued subsequent interim final rules with additional guidance for implementing the PPP.
On May 1, 2020 the SBA issued a Procedural Notice (Notice) providing guidance to eligible PPP lenders regarding sales of whole PPP loans. Also, on May 4, 2020, the SBA published an interim final rule (IFR) specifying timing and reporting requirement for lenders for PPP loan disbursements. This IFR is effective immediately and public comment on the proposed rule must be received on or before June 3, 2020.
Whole Sales of PPP Loans to Participating Lenders
In the Notice, the SBA provided the following guidance for sales of PPP loans:
- PPP lenders may sell all of their interest in PPP loans to other participating Lenders in accordance with 13 CFR § 120.432(a) without the SBA’s prior written consent.
- All PPP loans must be sold to lenders with a signed SBA Form 750, 3506, or 3507 (Loan Guarantee Agreement).
- The purchasing lender must either:
- possess the note and loan documents and service the loan; or
- elect to have the originating lender subservice the loan and hold the note and loan documents on its behalf.
The purchasing lender acquires the PPP loan subject to SBA’s existing rights, including its right to deny liability on its guarantee. The PPP loan will be purchased subject to the acquiring lender’s applicable Loan Guarantee Agreement.
The originating lender must immediately provide the SBA’s Office of Credit Risk Management with notice of any PPP whole loan sale including a loan list with the following in ascending order:
- Purchasing lender name.
- SBA loan number.
- Borrower name.
- Original loan amount.
- Current principal balance.
- Maturity date.
This information should be emailed to: [email protected].
For purposes of PPP loans only, the originating lender will be considered to meet the good standing and satisfactory performance requirements of 13 CFR § 120.433.
The purchasing lender will be the party responsible to the SBA for all servicing actions, including requests for advance purchases and loan forgiveness, and will be the party eligible for the guarantee purchase of a PPP loan.
Process for PPP Loan Disbursements
In order to ensure faster access to loan funds to cover payroll costs, the IFR provides that a PPP lender must make a one-time, full disbursement of the PPP loan within ten calendar days of loan approval (or the next business day if the tenth calendar day is a Saturday, Sunday, or legal holiday). A PPP loan is considered approved when it is assigned an SBA loan number.
The following transition rules (Transition Rules) apply to PPP loans that received an SBA loan number prior to the posting of the IFR, but have not yet been fully disbursed:
- The ten calendar-day period begins on April 28, 2020.
- The eight-week covered period begins on the date of first disbursement.
Lenders are not responsible for disbursement delays due to a borrower’s failure to timely provide required loan documentation. Loans that have not been disbursed because a borrower did not submit required loan documentation within 20 calendar days of loan approval will be cancelled by the lender, subject to the Transition Rules. When disbursing loans, lenders must send all loan proceeds designated to refinance an EIDL loan directly to the SBA and not to the borrower.
SBA Form 1502 Reporting Process for PPP Lenders
The IFR provides PPP lenders with the following guidance for reporting PPP loans and collecting processing fees:
- Lenders must electronically upload SBA Form 1502 information within 20 calendar days after a PPP loan is approved or, for loans approved prior to the IFR, by May 18, 2020.
- The lender must report on SBA Form 1502 if it has fully disbursed PPP loan proceeds.
- A lender will not receive a processing fee:
- 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 to conform to the borrower’s certification regarding the necessity of the PPP loan request (see Legal Update CARES Act: SBA Issues Guidance for Eligibility of Businesses Owned by Large Companies Under Paycheck Protection Program)).
- In addition to providing ACH credit information to direct payment of the requested processing fee, lenders must confirm that all PPP loans for which they are requesting a processing fee have been fully disbursed on the disbursement dates and in the loan amounts reported.
- A lender must report through either Etran Servicing or the SBA Form 1502 report any PPP loans that have been cancelled before disbursement or that have been cancelled or voluntarily terminated and repaid after disbursement.
This process should help ensure rapid disbursement of PPP funds to borrowers and enhance the SBA’s ability to track the PPP program data.
More Information
For summaries of the SBA PPP, see:
For additional guidance from the Treasury Department, see: