Of course, many financial institutions these days are struggling simply to finalize PPP loans and disburse the funds, due to numerous questions surrounding the documents required to issue the loan. (PPP lenders have delegated authority to issue the loans once they have submitted the applications.) The SBA said recently that lenders can use either their own promissory notes or an SBA form. However, SBA Form 147, the only SBA promissory note currently available (and the form the SBA posted to its website), was designed for SBA 7(a) loans. As such, it includes terms and requirements related to collateral, personal guarantees, fees, and other aspects that aren’t applicable to PPP loans. Likewise, the only authorization form (the SBA’s written agreement providing terms for guaranteeing the loan) available is one for 7(a) loans.
Lenders don’t need a separate SBA Authorization for SBA to guarantee a PPP loan, the Treasury Department and SBA clarified on April 11. However, they said in their FAQs, lenders must have “executed” SBA Form 2484 (the Lender Application Form - Paycheck Protection Program Lender Guarantee) to issue PPP loans and receive a loan number for each originated PPP loan. The agencies said “executed” means the lender has completed the process of submitting the loan through E-Tran, the government’s loan application processing system.
As a result, some lenders are using solutions that include a standard SBA Form 147 that lenders can autopopulate and save for easy use for the PPP, while others are consulting with lawyers like Joann Needleman, leader of Clark Hill PLC's Consumer Financial Services Regulatory & Compliance Practice Group, to draw up their own promissory notes. Needleman said in an interview that her firm has received numerous questions from client financial institutions about this issue and others related to the Paycheck Protection Program – in part, because they still don’t have enough information.
One side effect has been that some financial institutions want to include provisions in the loan document that they would typically include for standard loans. Needleman says they can’t always do that. “There are things they want that are not in the statute,” she said. Some usual provisions related to penalties or late fees, for example, wouldn’t be allowed because the PPP loans don’t allow fees.
Lenders are just as eager as their customers to close and fund the loans, but they are worried that issuing loans without answers to key questions puts the institution at risk.
“Overall, banks are like, ‘So we’re going to lend this money, and you tell me it’s guaranteed. The interest rate is only 1%, and then there’s this issue of forgiveness, and when do I ask them for money if it’s not forgiven,’” Needleman said. “The interim final rule was a good first step, the FAQs were a good first step, but the banks are very leery that what the SBA says is going to happen is going to happen, and they’re trying to protect themselves.”
Getting loan documents finalized will allow lenders to begin issuing and funding loans. For several days after applications launched, lenders weren’t sure if they had a deadline for disbursing funds. But on April 11, the SBA and Treasury updated their FAQs to note that lenders must make the first disbursement “no later than ten calendar days from the date of the loan approval.” It’s not clear how or if lenders are required to notify the SBA that loans have been funded.