How to Tackle Unresolved First and Second Draw PPP Loan Issues

Under the CARES Act in 2020, lenders could make and approve PPP loans without prior Small Business Administration (SBA) review. However, after the loan was issued, the SBA applied an automated screening tool that used public information and applied eligibility and fraud detection rules to identify non-compliance with eligibility requirements, fraud or abuse, or anomalies indicating non-compliance. This screening resulted in the issuance of hold codes on certain 2020 first draw PPP loans.

What’s changed for 2021?

Starting in 2021, the SBA began conducting compliance checks on the front-end (before the issuance of an SBA loan number) for first and second draw loans using a modified automated screening tool and information from the Treasury’s Do Not Pay lists. If an issue is identified, the tool generates a compliance check error message, which in most cases will identify the same error as the hold codes from the 2020 first draw PPP loan.

What are the consequences of unresolved issues?

Per the SBA’s January 14, 2021 Interim Final Ruling (IFR) Protection Program (PPP) Second Draw Loans, if your first draw PPP loan has an unresolved issue, which we now know may be due to hold codes or compliance check error messages, the SBA will notify the lender and no SBA loan number will be issued until the original loan request issue(s) are resolved.

An unresolved issue does not prohibit a borrower from receiving a second draw loan but it may affect the timing of a second draw funding to a borrower with economic need, if not resolved in a timely manner.

• If a second draw borrowers’ application is submitted by a lender and the borrower has hold code(s) from its 2020 first draw loan, then the application will automatically move to research status and the platform will provide the lender an opportunity to resolve the outstanding issue.
• Similarly, if a borrowers’ application for a first or second draw loan submitted by a lender receives a compliance check error message, the application will also automatically move to research status and the platform will provide the lender an opportunity to resolve the outstanding issue.

Once the issue(s) are resolved, loan requests will automatically move to the next stage of the process and should not require re-entry by the lender.

Support for hold codes and compliance check error messages

SBA Procedural Notice 5000-20092 provides two tables to help identify additional support to resolve hold codes and compliance check error messages. Table 1 codes and messages can be resolved by lenders through a certification process whereas Table 2 codes require SBA review.

Table 1: errors that can be resolved by lenders

If a lender chooses to proceed through the lender certification process, it can use SBA table 1 (see page 6), to identify the required additional support based on the codes triggered. All hold code(s) and compliance check error message(s) must be resolved and the authorized lender must certify that there are no outstanding hold code(s) or compliance check error message(s). The lender must submit support at the time of forgiveness or upon the SBA’s request.

If the lender is unable or unwilling to resolve the hold code(s) and compliance check error message(s), with exception of certain codes requiring SBA resolution, the lender must withdraw the application.

If a borrower did not apply for a second draw loan but has hold code(s) on it’s 2020 first draw application, the lender must resolve the hold code(s) during the forgiveness process.

If a borrower applies for a second draw loan using a new lender and has hold code(s) on the first draw loan, the new lender must resolve the hold code(s) and the first draw lender may reach out to the second draw lender as to how the hold code(s) was resolved during the forgiveness process.

Table 2: codes that require SBA review

Hold codes and error messages in SBA table 2 (see page 11) require the lender to submit support into the SBA’s platform. Lenders are advised to work with their borrowers in a timely manner to assess the situation and, if they feel confident it will resolve the issue, supply additional information. The SBA can then take time to review the documents and conclude on resolution.

Duplicate loans and other hold codes not covered in tables 1 and 2

The SBA has controls in place to identify duplicate loan requests. Duplicate loans may be triggered if the tax ID is already in use on an application or if an applicant applies for more than one first or second draw loan.

Some borrower applications may have hold codes that trigger one of two messages: “Internal SBA Hold – Details Not Publicly Available” or “Internal SBA Hold that cannot be cleared at this time – Details Not Publicly Available.” Lenders can reach out to the SBA through the platform to address “Internal SBA Hold – Details Not Publicly Available” messages. However, lenders are unable to resolve “Internal SBA Hold that cannot be cleared at this time – Details Not Publicly Available,” which may need to be addressed by the SBA.

How should borrowers address unresolved issues?

Move quickly to identify the additional documents requested and supply them to your lender, who can then forward them to the SBA. In some instances, you may have already included the required documentation, but the support may not have been easily identifiable by the SBA. In this situation, you many want to extract only the required additional support to share with your lender.

How we can help

CLA can help you identify next steps based on your loan hold code or compliance check error. Our team of professionals is here to help. We can provide insight and assistance at each stage of the PPP loan process, from origination to forgiveness.

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