The SBA issued a procedural notice clarifying that borrowers who received loans above the amounts allowed under PPP will be held responsible for repaying the loan’s excess amounts.
Some borrowers were approved for PPP loans above the amounts allowed under SBA guidance during the program. The problem was especially prevalent early in the PPP program due to:
- Lender confusion and conflicting opinions on the maximum loans for which borrowers could qualify, and
- Borrowers with differing conclusions about how to calculate qualified “payroll costs.”
As various third parties attempted to guide how to compute these amounts, the confusion increased. Even when third party guidance stated it was an interpretation and SBA might come out with a differing interpretation. Borrowers and lenders paid little heed to these warnings and used worksheets and other tentative guidance.
Early in the program, it became clear the demand for loans would be far more than the amount Congress had appropriated. Therefore, some borrowers felt if they waited for more precise and consistent guidance, they would likely find no funds available.
Not surprisingly, many borrowers were approved for a maximum loan in this environment, which was incorrectly calculated and not the actual qualified loan amount under the rules. Some borrowers were approved for amounts less than their actual qualified maximum, while other borrowers ended up with approval for a loan above what the law allowed.
The SBA has issued this procedural notice to address those borrowers who received an overfunding of their PPP loan. The guidance covers only errors made in good faith and implies that borrowers and lenders will not be able to get special treatment because they did the best they could—rather, the excess loan is not going to be subject to forgiveness.
If the lender or borrower identifies such an error, the lender is directed to deny forgiveness on the excess loan amount. The notice also states if the error is discovered after the SBA’s full forgiveness decision and SBA has paid off the loan, the lender must immediately inform the SBA and the borrower of the change. The notice concludes by noting the borrower must immediately begin repaying the excess loan once the situation comes to light.
