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Client Alert: Interim Final Rule On PPP Loan Disbursements

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Expectations Your Bank Should Communicate To Borrowers

Action Items


On April 28, 2020, the SBA issued an Interim Final Rule1 governing disbursement of Paycheck Protection Program (PPP) loan proceeds (4/28/20 Disbursement IFR). Under the 4/28/20 Disbursement IFR, lenders must disburse PPP loan proceeds within 10 days of the SBA approving a loan. For loans approved on or before April 28, 2020, the disbursement deadline is May 8, 2020.

Lenders may disburse PPP loan proceeds after the 10-day disbursement deadline if a borrower fails to timely submit all required documentation. However, the 4/28/20 Disbursement IFR provides that:

"Loans for which funds have not been disbursed because a borrower has not submitted required loan documentation within 20 calendar days of loan approval shall be cancelled by the lender, subject to the transition rules above."

What this means is that if a borrower fails to submit required documentation within 20 days after loan approval, or by May 18, 2020 for loans approved on or before April 28, 2020, then lenders must cancel that borrower’s PPP loan.

Litigation Risk Arising from the 4/28/20 Disbursement IFR

Some PPP borrowers will fail to submit the required documentation by the 20-day deadline set in the 4/28/20 Disbursement IFR, and those loans will have to be cancelled. Certain borrowers will blame their lender, notwithstanding that the borrower failed to submit the required documentation, and will file a lawsuit seeking damages. The precise legal theories will vary, as will the strength of each case, but regardless of the details, PPP lenders must be cognizant of the litigation risk.

What Can You Do To Mitigate Risk?

To mitigate risk arising from the 4/28/20 Disbursement IFR, lenders should consider sending a notice to PPP borrowers that:

We Can Help You

Barack Ferrazzano attorneys can help you draft notices for PPP borrowers and counsel you on risk mitigation strategies. Our attorneys are also available to counsel on specific situations in which a borrower fails to meet the documentation deadline set in the 4/28/20 Disbursement IFR, or raises concerns with your institution over any cancelled loans.

COVID-19 Resources

We recommend reviewing the following pandemic-related business and legal considerations we have been discussing with our clients:


1https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Disbursements.pdf

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