Lenders and Forgivable PPP Loans: What You Need To Know

On Friday, August 28, the AICPA released a Technical Question and Answer (TQA) under section 2130 that specifies how lenders should account for forgivable PPP loans.

As a reminder, a borrower must submit a loan forgiveness application to its lender, who then is responsible for determining the borrower’s eligibility for forgiveness. The lender then must report the decision to the SBA, which conducts its own application review process. If the loan is found to be in accordance with the guidelines set forth by the SBA, then SBA will remit the appropriate forgiveness amount to the lender.

Up to this point, lenders were left with questions on how to account for the loan that is eligible for forgiveness during the settlement process, resulting in the aforementioned TQA. According to the AICPA,

The loan should continue to be accounted for as an interest-bearing loan (including amortization of loan origination fees — see section 2130.44) through receipt of payment from the borrower or the SBA. Payments received from the borrower or the SBA prior to maturity of the loan (other than required payments of principal and interest) are considered prepayments of the loan.

The SBA remains one of the parties responsible for payment of principal and accrued interest on the loan as long as the borrower has provided proper documentation to the lender as well as the SBA. As a result, the AICPA concludes “that payments received from the SBA should be treated similarly to payments received from the borrower (see section 2130.45).”

It goes on to state “when payment is received from the borrower or the SBA (either in full or in part) prior to the loan’s maturity, amounts received should be accounted for as a prepayment, and unamortized loan origination fees should be accounted for in accordance with FASB ASC 310- 20, Receivables—Nonrefundable Fees and Other Costs.”

For additional TQA’s for lender accounting pursuant to the PPP, please click here.

We will continue to keep you informed as new information becomes available.