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SBA Announces Procedure for PPP Lenders to Collect Loan Processing Fees

On May 21, 2020, the U.S. Small Business Administration (“SBA”) released a notice informing lenders of how they may collect loan processing fees for eligible loans issued under the Paycheck Protection Program (“PPP”).

Pursuant to the CARES Act and the Interim Rule, issued by the SBA on April 2, 2020, the SBA will pay fees to lenders for processing eligible PPP loans at the following rates, based on the balance of the loan outstanding at the time of full disbursement:

  • 5% for loans under $350,000;

  • 3% for loans between $350,000 and $2 million; and

  • 1% for loans over $2 million.

However, in order to collect the processing fee on a PPP loan, a lender must first report to the SBA that a loan has been fully disbursed using SBA Form 1502.  The SBA will begin accepting these reports on fully disbursed PPP loans on May 22, 2020.  Once the report is received, the SBA will initiate the process of paying the PPP processing fee for which the lender is eligible.

Lenders will not receive processing fees for PPP loans in the following circumstances:

  • Prior to full disbursement of the loan;

  • If the loan is cancelled before disbursement;

  • If the PPP loan is cancelled or voluntarily terminated and repaid after disbursement but before the borrower certification safe harbor date of May 18, 2020 (including if a borrower repays the PPP loan because of a misunderstanding or misapplication of the borrower’s certification regarding the necessity of the PPP loan request); or

  • If the PPP loan is cancelled, terminated or repaid after disbursement (and after the borrower certification safe harbor date of May 18, 2020) because SBA conducted a loan review and determined that the borrower was ineligible for a PPP loan.

Importantly, lenders should also be aware that the SBA will require processing fees to be repaid  if the SBA determines that either the borrower was ineligible to receive a PPP loan within one year after loan disbursement or that the lender has not fulfilled its obligations under the PPP.  Repayment of processing fees due to a borrower’s ineligibility will have no effect on the SBA’s guaranty of the loan, provided that the lender complied with its obligations under the PPP.  In cases where the lender is found to have not complied with relevant obligations, the SBA will seek repayment of the loan processing fee and may also determine that the loan is not eligible for a guarantee.

For more information please see the SBA’s notice, PPP Lender Processing Fee Payment and 1502 Reporting Process, available here.

© 2020 Vedder Price

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About this Author

James M. Kane, Vedder Price Law Firm, Finance Attorney
Shareholder

James M. Kane joined Vedder Price in 1993 as a shareholder and is a member of the firm’s Financial Institutions Group. From 1981 until joining Vedder Price, he was the district counsel in Chicago for the Office of the Comptroller of the Currency. As the chief legal officer for the Six-State Central District (Illinois, Wisconsin, Michigan, Ohio, Indiana and Kentucky), he was responsible for providing legal and policy advice to the Deputy Comptroller and the 500 examiners of the Central District. In this capacity, he authored opinions on a wide variety of banking law issues and represented...

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James W. Morrissey, Vedder Price Law Firm, Finance Attorney
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James W. Morrissey is a shareholder and a member of the firm’s Financial Institutions Group and Finance and Transactions Group.

 

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Daniel C. McKay, Vedder Price Law Firm, Financial Attorney
Shareholder

Daniel C. McKay, II concentrates his practice in the representation of financial institutions and corporations and their officers, directors and shareholders in connection with mergers and acquisitions, securities offerings, corporate finance, corporate governance and regulatory and compliance matters.  He has been involved in more than 150 bank or thrift  mergers and acquisitions/securities offerings, with aggregate consideration of these deals totaling over $50 billion.

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Jennifer King, corporate, capital markets, securities, attorney, Vedder Price,
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Jennifer Durham King joined Vedder Price’s Chicago office in 1997 as a member of the firm’s Corporate and Capital Markets practice areas. She concentrates her practice in capital markets and corporate securities transactions, with a specific focus on financial institutions. Ms. King regularly represents issuers and underwriters in a broad range of capital markets transactions, including public and private debt and equity offerings, trust preferred offerings, mergers and acquisitions, and capital planning and formation.

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Juan M. Arciniegas, Vedder Price, derivatives, structured products and futures
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Juan M. Arciniegas is a Shareholder at Vedder Price and a member of the Investment Services group in the firm’s Chicago office.

Mr. Arciniegas works primarily as a derivatives lawyer and has significant experience in the market for over-the-counter (OTC) derivatives, structured products and futures. He advises on every stage throughout the life cycle of a derivatives transaction, from conducting pre-trade regulatory due diligence to negotiating transactional documentation and advising on post-trade reporting and recordkeeping obligations. This...

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