Reconsidering an Estimated Forgiveness Repurchase for Certain PPP Loans

• June 4, 2020
• Susan Sabo

his blog is being posted on behalf of my colleague, Todd Sprang, principal in CLA’s financial institutions practice.

Pending legislative alterations to the forgiveness criteria for borrowers, including extension of covered periods, are positive developments for both PPP borrowers and lenders.  Generally, these alterations are expected to increase forgiveness amounts and reduce or eliminate any remaining outstanding loan balances.   A potential downside of these alterations for lenders, however, relates to the accompanying delays in the timing of borrower forgiveness applications and SBA payments of forgiveness which also slow the lender’s transition from a low yielding PPP loan to a higher yielding asset.

SBA Purchase of Expected Forgiveness

One method a lender can use to accelerate forgiveness payments is to request the SBA purchase the expected forgiveness amount of a PPP loan or pool of PPP loans seven weeks after loan disbursement.  An increased covered period creates a much stronger value proposition for this method.   

The expected forgiveness amount is the amount of loan principal the lender reasonably expects the borrower to expend on qualifying expenses during the covered period. Unlike the 90-day approval period related to the SBA’s review of the lender decision on the borrower’s forgiveness application, the approval period for a lender request of expected forgiveness is only 15 days after the SBA receives a report that demonstrates a reasonable expected forgiveness amount.

Since the documentation requirements accompanying the request, as detailed below, require information from the borrower and time to compile, it is appropriate to limit these requests to higher dollar PPP loans that will generate greater value to the lending institution

Supporting the Expected Forgiveness Request

In accordance with the Interim Final Rule, a lender submission to the SBA requesting an advance purchase of expected forgiveness should specify the expected forgiveness amount and include:

1. Borrower’s PPP application form (i.e., SBA Form 2483) and any supporting documentation;
2. Lender’s application form for 7(a) loan guaranty (i.e., SBA Form 2484) and any supporting documentation;
3. Narrative explanation of your calculation of the expected forgiveness amount, including the basis of such calculation, alternative calculations considered and an explanation of why such alternatives were not used;
4. Any information obtained from the borrower since the loan was disbursed that you used to determine the expected forgiveness amount, which should include the same documentation required to apply for loan forgiveness such as payroll tax filings, cancelled checks, and other payment documentation; and

The lender may also need to provide additional information the SBA may require in assessing the reasonableness of the expected forgiveness amount.

Obstacles to Requesting Expected Forgiveness Payments

The following are examples of situations when requesting advance purchase of forgiveness amounts may not be a valuable option:

1. PPP loans with low outstanding balances
2. PPP loans securing funds obtained under the Federal Reserve’s Paycheck Protection Program Lending Facility

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 SBA guidance. Please contact your CLA representative anytime for more information. We are here to help you navigate through it.

Tags: COVID-19, Forgiveness, PPP, COVID-19 accounting and financial statement guidance, Financial Services General, Lending, Uncategorized | Comments Off on Reconsidering an Estimated Forgiveness Repurchase for Certain PPP Loans