The Small Business Administration (SBA) has issued a new Interim Final Rule (IFR) that provides an option for lenders to allow certain borrowers to apply for forgiveness directly through the SBA, creates an optional simplified method to document the required drop in revenue for Second Draw Paycheck Protection Program (PPP) loans for certain borrowers and provides a deferment of payments for those who timely file an appeal with the SBA.[1]

SBA Hosted Application for Forgiveness

The SBA is creating a direct borrower forgiveness portal where eligible borrowers will initiate the application process with the Small Business Administration at https://forgiveness.sba.gov.[2]

To be eligible to participate, a borrower must meet the following conditions:

The borrower’s lender must elect to participate in the SBA online application for forgiveness program and must direct the borrower to apply via the SBA program[3] and
The loan must have been for $150,000 or less.[4]

The SBA describes the process as follows:

When a PPP lender opts-in to the direct borrower forgiveness process, the Platform will provide a single secure location for all of its borrowers with loans of $150,000 or less to apply for loan forgiveness through the Platform using the electronic equivalent of SBA Form 3508S. Upon receipt of notice that a borrower has applied for forgiveness through the Platform, lenders will review the loan forgiveness application in the Platform and issue a forgiveness decision to SBA inside the Platform. SBA believes that lenders that opt-in to using the direct borrower forgiveness process will benefit with reduced costs, increased efficiency, and more timely remittance of forgiveness payments from SBA, while borrowers will benefit from the ability to submit loan forgiveness applications directly through the Platform and reduce the wait time and uncertainty associated with submission through their lender.[5]

The SBA plans to release the following additional information on the program in the near future:

The process for lenders to opt-in to the direct borrower forgiveness process,
The process for borrowers with loans of $150,000 or less to access the Platform and submit their loan forgiveness applications directly through the Platform, and
The process for lenders to access the forgiveness applications in the Platform to perform reviews of their borrowers’ applications, issue forgiveness decisions to SBA, and request forgiveness payments from SBA[6]

The SBA notes that even after the platform is launched, borrowers will need to submit their forgiveness application through their lender in the following situations:

The PPP lender does not opt-in to use the direct borrower forgiveness process;
The borrower’s PPP loan amount is greater than $150,000;
The borrower does not agree with the data as provided by the SBA system of record, or cannot validate their identity in the Platform (for example, if there is an unreported change of ownership); or
For any other reason where the Platform rejects the borrower’s submission.[7]

The lender will be required to continue processing any applications already submitted before the lender opts-in, rather than being able to force borrowers to begin the process again under the SBA system:

During the transition period after the launch of the direct borrower forgiveness process, lenders that opt-in will be expected to complete the processing of any loan forgiveness applications that have already been submitted by borrowers to the lender and should inform such borrowers not to submit a duplicate loan forgiveness application through the Platform.[8]

COVID Revenue Reduction Score

One of the requirements for a borrower to obtain a second draw PPP loan is that the borrower must have suffered a reduction in revenue of not less than 25% for one quarter in 2020 compared to the same quarter in 2019. Those who borrowed less than $150,000 were allowed to delay providing evidence to support this revenue reduction until they applied for loan forgiveness.[9]

The IFR Overview provides the following description of the original process for demonstrating that a borrower had met this criteria:

The Second Draw PPP Loan IFR and the Loan Forgiveness and Loan Review IFR implementing the Economic Aid Act provide that if a borrower with a Second Draw PPP Loan of $150,000 or less did not produce documentation of revenue reduction at the time of application, the borrower must, on or before the date the borrower applies for loan forgiveness, submit to the lender documentation adequate to establish that the borrower experienced a revenue reduction of 25% or greater in 2020 relative to 2019, and such documentation may include relevant tax forms, including annual tax forms, or if relevant tax forms are not available, quarterly financial statements or bank statements. The rules also provide that where a borrower with a Second Draw PPP Loan of $150,000 or less does not provide documentation of revenue reduction with its loan application, the lender must perform a good faith review of the documents provided by the borrower at or before forgiveness, including the borrower’s calculations and supporting documents.[10]

The SBA will establish, as an alternative to providing the information discussed above, a COVID Revenue Reduction Score based on information regarding the borrower’s industry. If a borrower’s COVID Revenue Reduction Score shows a 25% reduction in revenue, the lender will treat that as satisfying the documentation of a revenue reduction requirement.[11]

The purpose of the program is described as follows in the IFR’s Overview:

To streamline forgiveness of Second Draw PPP Loans of $150,000 or less where the borrower did not submit documentation of revenue reduction at the time of the loan application, SBA has determined that an alternative form of revenue reduction confirmation is warranted to document the borrower’s revenue reduction.[12]

The IFR goes on to describe the source of the COVID Revenue Reduction Score:

An independent third-party SBA contractor has developed a COVID Revenue Reduction Score (score) based on a variety of inputs including industry, geography, and business size. The score uses current data on economic recovery and return of businesses to operational status.[13]

The score will only be used for loans of $150,000 or less, and will be an optional basis for lenders to use to verify qualification:

Each Second Draw PPP Loan of $150,000 or less will be assigned a score, which will be maintained in the Platform and will be visible to lenders to use on an optional basis as an alternative to document revenue reduction. Additionally, the score will be visible to those borrowers that submit their loan forgiveness applications through the Platform using the direct borrower forgiveness process.[14]

The use of the score to bypass the requirement for the borrower to document the revenue reduction to the lender is detailed by the SBA as follows:

When the score meets or exceeds the value required for validation of the borrower’s revenue reduction, use of the score will satisfy the requirement for the borrower to document revenue reduction.[15]

If the score does not show the 25% reduction being met, the borrower is not out of luck, but rather must now provide the detailed documentation to support a decrease in revenue that had previously been required for all borrowers.

When the score does not meet the value required for validation of the borrower’s revenue reduction, and if the borrower has not already provided documentation to the lender that validates the borrower’s revenue reduction, the borrower must provide documentation either directly to the lender (for those lenders that do not opt-in to the direct borrower forgiveness process) or provide documentation to the lender by uploading it to the Platform.[16]

The IFR indicates that the SBA will shortly provide more information with regard to the score and its use.[17]

Deferment Extension for SBA Office of Hearings and Appeals (OHA) Appeals

While borrowers have a right to appeal the final loan review decisions of the SBA, current guidance requires the borrower to begin making payments on the loan before the appeal process is completed.

Currently, the rule for appeals of final SBA loan review decisions on PPP loans provides that because a PPP borrower must begin making payments of principal and interest on the remaining balance of its PPP loan when SBA remits the loan forgiveness amount to the PPP lender (or notifies the lender that no loan forgiveness is allowed), an appeal by a PPP borrower of any final SBA loan review decision does not extend the deferment period of the PPP loan. [18]

However, the SBA has now determined that the process could be unnecessarily administratively burdensome should the borrower be successful on appeal, and thus will revise the provisions to allow for deferment:

SBA has determined that, in order to avoid the potential administrative burden of having to reverse implementation of the final SBA loan review decision, including the refund of borrower payments by the lender and the processing of forgiveness payments by SBA, a timely appeal by a PPP borrower of a final SBA loan review decision should extend the deferment period of the PPP loan. SBA believes that allowing for continued deferment is in the best interest of the borrower. For these reasons, SBA is conforming the applicable PPP rules to provide that a timely appeal by a PPP borrower of a final SBA loan review decision extends the deferment period of the PPP loan until OHA’s decision becomes final under 13 CFR 134.1211.[19]

The new IFR allows the borrower to extend the deferment period to cover the period the final loan review decision is under appeal:[20]

SBA is amending the appeals rule to, among other things, provide that a borrower’s timely appeal of a final SBA loan review decision will extend the deferment period for the PPP loan until SBA’s Office of Hearings and Appeals (OHA) issues a final decision on the appeal.[21]

However, the borrower will need to take action to inform the lender that the decision is under appeal at the OHA to take advantage of the deferment extension:

The revised OHA rule will provide that the borrower should notify the lender of the appeal so that the lender can extend the deferment period. Under the revised OHA rule, an appeal petition must be filed with OHA within 30 calendar days after the appellant’s receipt of the final SBA loan review decision.[22]

Effective Date

These revisions take effect immediately upon release of the IFR.[23]

[1] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, https://www.sba.gov/sites/default/files/2021-07/FINAL%20IFR%20Forgiveness%207.23.21-508.pdf (retrieved July 29, 2021)

[2] Part IV.2.a. of the Consolidated Forgiveness and Loan Review IFR (86 FR 8283, 8287)

[3] Part IV.2.a. of the Consolidated Forgiveness and Loan Review IFR (86 FR 8283, 8287) and Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.2

[4] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.2

[5] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.2

[6] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.2

[7] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.2

[8] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.2

[9] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.1

[10] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.1

[11] Part IV.6.a. of the Consolidated Forgiveness and Loan Review IFR (86 FR 8283, 8293), Part IV.6.b. of the Consolidated Forgiveness and Loan Review IFR (86 FR 8283, 8293), SBA Form 3508S subsection of Part V.2.a. of the Consolidated Forgiveness and Loan Review IFR (86 FR 8283, 8296), Part IV.(g)(2)(v) of the Second Draw IFR (86 FR 3712, 3721), and Part IV.(j) of the Second Draw IFR (86 FR 3712, 3722)

[12] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.1

[13] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.1

[14] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.1

[15] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.1

[16] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.1

[17] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.A.1

[18] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.B

[19] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.B

[20] Part IV.2.b. of the Consolidated Forgiveness and Loan Review IFR (86 FR 8283, 8288) and Part III.B.9. of the Consolidated Eligibility IFR (86 FR 3692, 3703)

[21] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.B

[22] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section III.B

[23] Interim Final Rule RIN 3245-AH79, Business Loan Program Temporary Changes; Paycheck Protection Program – COVID Revenue Reduction Score, Direct Borrower Forgiveness Process, and Appeals Deferment, July 28, 2021, Overview Section II