The U.S. Small Business Administration (SBA) has released details on a Direct Forgiveness portal that allows borrowers with Paycheck Protection Program (PPP) loans of $150,000 and under to submit their forgiveness applications on the SBA’s web portal. The SBA has also released Interim Final Rules (IFR) explaining the direct borrower forgiveness process, appeals deferment, and the COVID Revenue Reduction Score [SBA Release No. 21-58, 7/28/2021].
Overview
The CARES Act established the Paycheck Protection Program (PPP) which permitted the SBA to provide forgivable loans to qualified businesses impacted by the coronavirus (COVID-19) pandemic. Small businesses may use the PPP loans for up to 60% of payroll costs and 40% in nonpayroll costs (utilities, rent, and mortgage interest). The Consolidated Appropriations Act 2021 (CAA, 2021) included the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act) that authorizes additional funding to the program and extended the program until March 31, 2021. The Economic Aid Act also expanded access to First Draw PPP Loans to other entities, expanded additional eligible expenses, clarified terms, and authorized Second Draw PPP Loans for smaller borrowers.
Current Process
Currently, all borrowers submit forgiveness documentation to lenders who submit the information and the forgiveness decision to the SBA. Documentation would include Forms 3508, 3508EZ, or 3508S. Optional documentation would be submitted if the SBA chooses to review the decision.
Direct Forgiveness Portal
The new Direct Forgiveness portal streamlines the current forgiveness process by allowing small borrowers (PPP loans of $150,000 or under) to request forgiveness directly from the SBA. Lenders must opt in for participation. Borrowers may only submit their forgiveness application if their lender has opted in. Once a borrower submits an application, the lender may approve, reject, or require the borrower to correct information. Once approved by the lender, the SBA will review the forgiveness application.
The SBA notes that the change will “rush relief to over 6.5 million smallest of small businesses.” Loans of $150,000 or less represent 93% of outstanding PPP loans. The new Direct Forgiveness portal will begin accepting applications from borrowers on August 4, 2021.
Direct Forgiveness Webinar for Lenders
During a July 28 webinar conducted by the SBA for lenders, attendees received a sneak peek at the portal currently in beta format. The portal asks the borrower to submit information that would be required on Form 3508S (PPP Loan Forgiveness Application) that is used only for borrowers with PPP loans of $150,000 or less. Once the process is completed, the portal generates the form, and the borrower may sign the document electronically via DocuSign. The borrower is also able to upload documentation to support a 25% revenue reduction (required for Second Draw PPP loans). Note that if a borrower submits this documentation, it will override the COVID Revenue Reduction Score (see below) generated by the SBA. Live customer service is available at (877) 552-2692. The SBA has released a Direct Forgiveness Portal User Guide for borrowers.
COVID Revenue Reduction Score
Second Draw PPP loan borrowers are required to demonstrate a 25% revenue reduction. The SBA recognized that small borrowers with small loans may not have the ability to generate a profit and loss statement. The SBA has created a COVID Revenue Reduction score for loans of $150,000 or less for all lenders to see. Scores will simply be passing or failing. A passing score would replace the need for the borrower to provide documentation of the 25% revenue reduction. The score is based on a variety of data sets as outlined in the IFR. However, if the borrower has already provided documentation of revenue reduction, this trumps the score. If a score is failing, the borrower will need to provide documentation. Ultimately, the lender retains the responsibility for the loan forgiveness decision.
Interim final rules
The SBA has released an IFR, RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment which has not yet been published in the Federal Register. The IFR provides details on the streamlined direct forgiveness process, the use of a COVID Revenue Reduction Score, and also extends the loan deferment period for those PPP loans where the borrower timely files an appeal of a final SBA loan review decision with the SBA Office of Hearings and Appeals.
