Best Practices: SBA’s Guidance on Submitting Guaranty Purchase Requests for PPP Loans

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Best Practices: SBA's Guidance on Submitting Guaranty Purchase Requests for PPP Loans

By: Katherine D. Tohanczyn, Esquire

Effective July 15, 2021, SBA issued Procedural Notice 5000‑812316, “SBA Guaranty Purchases and Lender Servicing Responsibilities for PPP Loans.” The Notice provides critical guidance on how lenders should service their PPP loans and submit purchase submissions. In her article published on July 28, 2021, my colleague reviewed the servicing requirements for PPP loans. In this article, we will focus on the procedures for guaranty purchase. When can a lender request the SBA to honor its guaranty? A lender can request the SBA to purchase and charge-off its PPP loan under the following circumstances:

When the loan is 60 days past due and not cured, but only after making demand for payment;
When the borrower has permanently closed and will not submit a forgiveness request;
When the borrower has filed for Chapter 7 bankruptcy, but only after the lender has filed a proof of claim (except that a proof of claim is not required for a Chapter 7 “no asset” bankruptcy); and
When the borrower is a self-employed individual, sole proprietor, single member LLC or independent contractor, and the owner is deceased.

A lender may also request purchase without a charge-off under the following circumstances:

When the borrower or any 20% or more owner has been indicted or convicted of a felony related to the PPP loan; or
When 60 days have passed since the borrower has filed an appeal of a final SBA loan review decision with the Office of Hearings and Appeals.

Per the procedural notice, the SBA will be released from liability on the guaranty 180 days after the maturity of the loan. As such, lenders should be aware of the maturity dates in their notes, especially on first draw loans.

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IN THE SPOTLIGHT

Kristen Dickey, Esquire

Kristen is an attorney in Starfield & Smith's Florida office and she concentrates her practice in the areas of commercial lending, real estate, contracts and corporate law. As closing counsel for various financial institutions (including banks, credit unions and certified development companies) that extend commercial credit facilities to small and mid-size businesses, she drafts, analyzes and negotiates documents for government guaranteed loans through SBA 7(a) and 504 loan programs and conventional loans. Kristen also reviews SBA guaranteed loan files and advises lenders on eligibility matters, due diligence documentation and closing issues in order to preserve and protect their government guarantees.

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District of Columbia

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