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Inspector brushes back SBA on 75/25 forgiveness rule

On Behalf of | May 8, 2020 | Firm News

Friday afternoon, the SBA’s inspector general outlined areas of SBA’s PPP regulations that do not comport with Congress’ language in the CARES Act.

In the crosshairs: the requirement that at least 75 percent of the forgiven sum be comprised of payroll costs.

According to the IG, this rule would result in tens of thousands of borrowers paying back operational expenses that exceeded 25 percent of the total forgiveness.

The IG suggested that SBA “evaluate the potential negative impact to borrowers … and update the requirements, as deemed necessary.”

The report also critiqued SBA for failing to provide guidance to lenders on how to (1) process the CARES Act’s 6-month deferment on loan repayment, and (2) prioritize under-served markets.

This is not the first criticism levied at the 75/25 forgiveness rule. The architects of the PPP have called the rule a mistake. “Treasury and the SBA were not really fulfilling the intent of the original legislation,” said Glenn Hubbard, dean emeritus at Columbia Business School.

Borrowers await additional guidance from SBA, including the finalization of an interim rule issued in April. SBA has specifically promised additional regulation on the “uncertainty” certification, which has caused many borrowers to consider repaying their PPP loan.

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