SBA Issues FAQs on Revenue Reduction, Loan Calculations for Second-Draw PPP Loans

With the Paycheck Protection Program portal reopening for all lenders Tuesday morning, the Small Business Administration on Tuesday issued a set of frequently asked questions that address how to calculate revenue reduction and maximum loan amounts for second-draw PPP loans, as well as the documents borrowers must provide to back up these calculations. Second-draw loans are available for borrowers with 300 or fewer employees that experienced a 25% or greater revenue drop in 2020 compared to 2019 and that have used or intend to use the full amount of their first-draw PPP loan by the time they receive their second draw loan.

“Lenders may rely on this guidance as SBA’s interpretations of the CARES Act, the Economic Aid Act and the Paycheck Protection Program interim final rules,” SBA said. “The government will not challenge lender PPP actions that conform to this guidance and to the PPP interim final rules and any subsequent rulemaking in effect at the time the action is taken.”

SBA also issued a reminder regarding borrowers who have applied for second-draw loans and who currently have loans under review by SBA, or SBA has determined that the borrower may not have been eligible for a first-draw loan. In these cases, SBA said that the lender will not receive an SBA loan number for a borrower’s second-draw loan until the issue related to the first-draw loan is resolved. SBA said it will “resolve issues related to unresolved borrowers expeditiously.”

Since the portal opened last week through Sunday, SBA said it had approved nearly 60,000 PPP loans submitted by 3,000 lenders and totaling over $5 billion. Read the FAQs. Bankers may direct questions to [email protected].

SBA Updates Rules, Forms for PPP Loan Forgiveness

Late Tuesday night, SBA released revised loan forgiveness forms for the PPP. SBA also released an updated interim final rule on PPP forgiveness and a new conflict of interest disclosure. The revised forms include Form 3508S, which provides a streamlined forgiveness application for all PPP loans of $150,000 or less. In reviewing Form 3508S, “the lender does not need to independently verify the borrower’s reported information” if the borrower submits documentation and attests to its accuracy, SBA said, but should the lender identify an error, it “should work with the borrower to remedy the issue.”

The interim final rule consolidates previous guidance with new requirements under the Economic Aid Act, the COVID-19 relief package passed in December reauthorizing the PPP. For example, the rule incorporates the hold-harmless provision from the law for lenders that rely in good faith on borrowers’ certification and documentation, updates what payroll costs are eligible for forgiveness and reflects the process for both first-draw and second-draw PPP loans. The rule also covers non-payroll costs eligible for forgiveness, reductions in forgiveness, documentation requirements, SBA review and lender fees.

SBA specified that it will revise pre-existing FAQ documents to conform to the Economic Aid Act “as quickly as feasible.” Also mandated by the Economic Aid Act, the new disclosure form is required for PPP applicants for which at least 20% of their equity is held by certain executive branch officials, members of Congress and their spouses.

• Read the interim final rule.
• Download the revised Forms 3508, 3508EZ and 3508S.
• Download the borrower disclosure.

Biden Orders Halt to Regulations in Process

On President Biden’s first day in office, the White House issued a memo directing “executive departments and agencies” to freeze any pending regulations not yet published in the Federal Register. These regulations must be approved by a department or agency head designated by the new president; the Office of Management and Budget may permit exceptions to the review process in emergencies or for other urgent reasons.

For rules sent to the Office of the Federal Register but not yet published, the memo directs departments and agencies to withdraw them from the Federal Register and seek approval. For rules that have been published but that have not yet taken effect, the White House asked departments and agencies to consider delaying effective dates for 60 days, seeking public comments and considering petitions for reconsideration.

The language of the memo—which is customary for new administrations— was not specific about what agencies are covered and whether it applies to independent agencies. Since most banking agencies are independent, it was unclear whether pending rulemakings at those agencies would be covered. As the memo is implemented and further information is made available, ABA will monitor its effects on any bank-related regulations. Read the memo.

Biden Names Acting Agency Leadership

Pending confirmation of his executive branch and administrative agency nominees, President Biden yesterday designated acting leaders for several agencies. Primarily drawn from the ranks of career civil servants, leaders at departments and agencies pertinent to banks include:

• Matt Ammonn, acting secretary, Department of Housing and Urban Development
• Andy Baukol, acting secretary, Department of the Treasury
• Rob Fairweather, acting director, Office of Management and Budget
• Tami Perriello, acting administrator, Small Business Administration
• Kevin Shea, acting secretary, Department of Agriculture
• Al Stewart, acting secretary, Department of Labor
• Dave Uejio, acting director, Consumer Financial Protection Bureau

Read more. 

Kraninger Resigns as CFPB Director

Application Available for SD Bankers Foundation's Named Scholarships

Hacker Hour: Seven Steps to Build an Incident Response Playbook 

The ability to respond quickly and effectively to a cyber incident can determine the overall financial and reputational impact on your organization. An incident response playbook is designed to provide a step-by-step walk-through for the most probable and impactful cyber threats and ensure certain steps of the incident response plan are followed appropriately.

Join SBS CyberSecurity for Hacker Hour: Seven Steps to Build an Incident Response Plan on Wednesday, Jan. 27, at 2 p.m. CST. SBS will walk through the seven steps to creating an incident response playbook tailored to your organization. Register for the complimentary webinar. 

Ground Works/SD Ag in the Classroom's Impact Taking Root; Needs Your Help

Ground Works/SD Ag in the Classroom, created in 2011 with an integrated program approach, uses teaching gardens, summer camps and digital computer programs to deliver lessons in STEAM (science, technology, engineering, arts and math) education, agriculture literacy and student leadership. The program needs your help.

Last spring, Ground Works/SD Ag in the Classroom connected forth grade students and their teachers through on-air radio interviews. Students and teachers shared the impact of South Dakota Road Trip (an online education platform) on their learning and understanding of the state's agriculture and history. South Dakota Road Trip, which is one piece of Ground Works/SD Ag in the Classroom mosaic, ended the 2020 school year serving more than 8,700 students and teachers.

Those interviews provided the seed for a video series to take root. “Kid Teachers: In Their Field” features students in South Dakota talking to other students. Topics of the videos, which are each less than five minutes, range from “Greasing the Zerks” to “Growing Garbanzo Beans” to an explanation of “Knee High by the Fourth of July”. The videos are housed on a YouTube channel.

Ground Works/SD Ag in the Classroom needs your help in connecting with individuals and groups to share their mission and vision in order to expand community involvement, communication and funding opportunities. Contact Ground Works/SD Ag in the Classroom at 605.275.9159, via email or visit their website.

Question of the Week

Question: If the bank is escrowing for flood insurance is there a regulatory requirement to also escrow for real estate taxes or can the bank waive it? 

Answer: The federal regulations only require you to escrow for taxes and hazard insurance if the loan is an HPML. Escrowing for taxes and hazard insurance can also be required by internal or investor guidelines. 

Reference: Except as provided in paragraph (b)(2) of this section, a creditor may not extend a higher-priced mortgage loan secured by a first lien on a consumer's principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer's default or other credit loss.  

12 CFR § 1026.35(b)(1): https://www.consumerfinance.gov/rules-policy/regulations/1026/35/#b-1

Not a member? Learn more about membership with Compliance Alliance by attending one of our live demos:

• Tuesday, Jan. 26, 10-11 a.m. CST
• Thursday, Jan. 28, 1-2 p.m. CST

Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call 888.353.3933 or email and ask for our Membership Team.

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Questions/Comments
Contact Alisa Bousa, SDBA, at 605.224.1653 or via email.