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PPP Loan Forgiveness: What Banks Should Consider in Their Controls

Article
5 minute read
May 18, 2020

The Paycheck Protection Program (PPP) has proven to be both a significant challenge and monumental opportunity for community banks. Banks have successfully navigated the uncertainty stemming from a lack of clear guidance and the demands of extremely high volume. As the initial rounds of PPP funding are now largely completed, banks are turning their focus to forgiveness. 

On May 15, 2020, the Small Business Administration (SBA) released loan forgiveness forms and instructions, which provide some clarity for borrowers and lenders. Banks can now think more specifically about the forgiveness phase.

In establishing a framework for processing loan forgiveness calculations, it is important for banks to remember who has ultimate responsibility for accuracy of loan forgiveness: the borrower. The SBA Interim Final Rule states, “The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs. The Administrator will hold harmless any lender that relies on such borrower documents and attestation from a borrower.”

Accordingly, loan forgiveness processes and controls should primarily focus on completeness of documentation and performance of necessary reviews and monitoring. For most lenders, the loan forgiveness process will include the following steps:

PPP Loan Forgiveness

To support forgiveness calculations, banks should require the following documentation (at a minimum):

Specific instructions regarding required documentation are included with the SBA Loan Forgiveness Application Instructions for Borrowers.

To minimize bank risks in the forgiveness process and put customers in the best position should their loan be selected for audit, banks should consider the following controls:

If you would like to talk through your processes, assess your controls, or ask questions about your loan forgiveness processes, contact us.

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