Form 1502 Guidance Reveals Additional Clawbacks
This blog is being posted on behalf of my colleagues, Susan Sabo and Todd Sprang, principals in CLA’s financial institutions practice.
On May 21, 2020, the SBA issued more guidance to lenders about the Paycheck Protection Program (PPP) Lender Processing Fee Payment and 1502 Reporting Process. Within the eight-page document, the SBA reiterates aspects of the initial PPP interim final rule and outlines operational matters for filing reports and receiving payment. Based on our review, lenders should be aware of the following matters.
Instructions for Preparation and Submission
Beginning on May 22, 2020, lenders will use Form 1502 to provide PPP loan data to the SBA and in turn, trigger the payment of PPP loan processing fees. Lenders have until May 29, 2020 to submit all data for their PPP loans or 10 calendar days after the loan is disbursed or canceled, whichever is later. Thereafter, the Form 1502 is submitted monthly. As PPP loans are paid in full or following forgiveness no loan balance remains, the lender will report those loans as paid in full on the next Form 1502 and stop further reporting on those loans. Additionally, lenders who were previously SBA 7(a) lenders should submit a separate Form 1502 for PPP loans and regular 7(a) loans.
Because lenders will be submitting all relevant actions for PPP loans on a single Form 1502, it is critical to recognize the end result of the loan as funded, cancelled or voluntarily terminated. The E-Tran system has options available to indicate statuses. However, further instructions are pending on the Form 1502 to ensure accurate reporting and will be posted to the Colson Services page when completed.
Payment of Processing Fee
One of the bigger questions – when will lenders receiving their processing fees? While this document did not provide a timeline for payment of the fees, it did disclose that SBA will calculate the fees and all payments will be sent via ACH on an individual loan basis to allow lenders a clear match to each loan funded. All PPP lenders should ensure the direct deposit / ACH information is accurate and populated in Colson’s system.
Clawback of Processing Fee
A significant development accompanying today’s SBA Procedural Notice is the disclosure of additional scenarios under which lenders may have to refund their fees to SBA. It has been well publicized that lenders would not collect fees for borrowers that cancelled, voluntarily terminated or repaid in full before the safe harbor date, but we are now aware of the following additional clawback scenarios:
- As a result of SBA review at the time of forgiveness purchase or at any time the SBA deems appropriate
- If SBA review within a year of disbursement determines the borrower was ineligible
- Lender fails to satisfy the requirements of section III.3.b of the initial PPP Interim Final Rule or the document collection and retention requirements of Form 2484
Scenarios 2 and 3 above could potentially jeopardize the loan’s eligibility for a guaranty. Also, those lenders using agents or lender service providers (LSPs) would be held responsible for any missteps by those agents or LSPs.
We are currently evaluating the potential impact on revenue recognition as our mid-April guidance viewed PPP lender fees as nonrefundable.
How can we help?
Throughout the PPP process, we have seen continuously changing guidance for both borrowers and lenders and we expect more to come for lenders as we move into the forgiveness phase for borrowers. CLA is here to know you and help you, and we can help you understand the SBA guidance. Please contact your CLA representative anytime for more information. We are here to help you navigate through this.
Scott is the leader in CLA’s Financial Institutions group, and a member of the National Assurance Technical Group. He has 15 years of experience with audit and accounting services for financial institutions of all sizes.
Comments are closed.