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Initial PPP loan sizing confusion may have resulted in good-faith errors. Review ways you can take action now to avoid repercussions.

Financial Management and Disaster Relief

You Received a PPP Loan That Exceeds the Maximum Allowed — Now What?

  • Matthew Rambaran
  • 2/15/2021

Key insights

  • Good-faith errors in PPP loan applications may have led to some loans being oversized.
  • Borrowers and lenders should work together to remedy the incorrect PPP amounts.
  • The borrower is at risk of being liable, so if you are a PPP borrower, make sure you account for any errors soon!

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During first draw loans for the Paycheck Protection Program (PPP) in March 2020, there was much confusion surrounding the calculations and payroll items to include in loan sizing. As such, borrowers could have made errors in good faith that resulted in a PPP loan amount exceeding the borrower’s correct maximum loan amount.

If you identified errors in your PPP loan sizing for first or second draw, it’s crucial you pay attention to the Small Business Administration (SBA) Procedural Notice released on January 15, 2021. This notice informs PPP lenders of the effects of “excess loan amount errors” made by either the borrower or the lender in completing the PPP Borrower Application Form.

What is an excess loan amount error?

The notice defines an excess loan amount error as an error made in good faith by a borrower or lender that caused a borrower to receive a PPP loan amount that exceeds the borrower’s correct maximum loan amount.

Some common errors include:

  • Borrower mistakenly failed to subtract amounts paid to employees in excess of $100,000 annualized
  • Borrower mistakenly included payments to an independent contractor in its calculation of payroll costs
  • Lender input error (e.g., approving the borrower for $35,000 when the application was for $25,000)

Irrespective of whether the error was caused by the borrower or lender, the notice makes it clear that a borrower may not receive loan forgiveness for amounts that exceed the correct maximum loan. Importantly (and perhaps obviously), excess loan amount errors do not include providing a known misstatement, which may result in additional action, such as charges for fraud.

What can the borrower or lender do to correct the error?

You have identified an error and now you want to fix it. Here are some next steps:

  • A borrower that discovers an error should not request forgiveness for the amount of the loan in excess of the correct maximum loan amount.
  • If a borrower or lender identifies an error before submitting the forgiveness application to the SBA, the lender must issue a decision to the SBA that denies forgiveness for the amount in excess of the borrower’s correct maximum loan amount.
  • If an excess loan amount error is identified after it has been submitted to the SBA, the lender should promptly request the withdrawal of the lender loan forgiveness decision by notifying the SBA through the SBA Paycheck Protection Platform. The lender can then correct the error and resubmit a new lender forgiveness decision.
  • If the SBA has issued forgiveness and has remitted payment to the lender, the lender must notify the SBA and borrower through the SBA Paycheck Protection Platform.

Unforgiven loan amounts remain obligations of the borrower, and the borrower must begin making payments on any unforgiven portion of a PPP loan.

First or second draw considerations

If you are applying for first draw, take care in appropriately sizing and following SBA guidance. If you are a second draw borrower, revisit your calculations to make sure an error was not present in the first draw. If one is identified, work with your lender to remedy the issue following the procedural notice. Second draw borrowers can then adjust their second draw application, if reusing amounts calculated for the first draw.

How we can help

COVID-19 economic relief guidance is ever-changing. Our team of professionals stays informed of the latest information and policies so we can continue to help you identify potential opportunities and stay compliant. If you or your organization needs help to remedy past errors, contact us.

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