SBA Updates Guidance on Calculating PPP Loan Amounts

January 19, 2021

On January 19, 2021, the U.S. Small Business Administration (SBA) provided the guidance, “How to Calculate Revenue Reduction and Maximum Loan Amounts Including What Documentation to Provide,” which offered clarity around Second Draw Paycheck Protection Program (PPP) Loans. This release follows the SBA’s  January 17th update to the guidance, “How to Calculate Maximum Loan Amounts for First Draw PPP Loans,” which had not been refreshed since June 26 of last year.

While the updated information remains mostly consistent with the prior guidance, the release comes just two days after the SBA issued a Procedural Notice on PPP “excess loan amount errors” (the Notice) and serves as a helpful reminder on the impact of improperly calculating borrowing capacity.

Here are some answers to a few key questions you may have:

What is an excess loan amount error?

An excess loan amount error is a borrower or lender error, made in good faith, that caused a borrower to receive a PPP loan amount exceeding their correct maximum loan amount under the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Economic Aid Act. An excess loan amount error does not include a knowing misstatement.

What is the impact of an excess loan amount error on loan forgiveness?

A borrower may not receive loan forgiveness for any amount that exceeds the correct maximum loan amount permitted by statute for that borrower; this is true whether the excess loan amount was caused by borrower or lender error. If a borrower or lender identifies an error in their application that caused them to receive a larger PPP loan than they were eligible for, the lender must issue a decision to the SBA denying forgiveness for the amount that exceeded the borrower’s correct maximum loan amount.

What is the impact of an excess loan amount error on a borrower’s obligations?

If the lender or SBA, as applicable, determines a borrower was ineligible for any portion of their loan amount, forgiveness will be denied for the ineligible portion and the borrower must begin making payments on the remaining loan amount. Any unforgiven loan amounts remain the borrower’s obligation, even if they were ineligible to receive some or all of the loan.

The bottom line

During the PPP application process, applicants must certify “that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects.” According to the SBA, while “the Lender will confirm the eligible loan amount using required documents submitted,” the ultimate responsibility for properly calculating the loan amount rests with the applicant.

We have seen several instances in which a borrower received PPP funds in excess of the amount they were eligible for. This can present financial challenges for businesses that obtained and used these amounts with the expectation that they would not be required to repay them.

Let Aprio help

Aprio has established a dedicated PPP team that is continuously monitoring new guidance from the SBA — as well as the U.S. Department of the Treasury, Congress and the IRS — to ensure we leverage the latest information when advising our clients.

To discuss how to determine your PPP eligibility and accurately calculate your borrowing capacity, contact Aprio’s dedicated PPP team.

Disclaimer for services provided relative to SBA programs and the CARES Act

Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.

The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.

Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.

You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.

In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.

Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.

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About the Author

Justin Elanjian

Justin Elanjian, CPA, is the Partner-in-Charge of Aprio’s Paycheck Protection Program (PPP) & Employee Retention Credit (ERC) Services. As a national PPP expert, prominent speaker and strategic business advisor, Justin helps both lenders and borrowers navigate the complexities of the PPP. He also helps his clients realize benefits from other stimulus package programs, such as the ERC, and is committed to strengthening his clients’ balance sheets and helping them achieve what’s next. Justin also leads a team of more than 50 professionals who share his passion for helping businesses maximize the federal COVID relief programs.