Lenders: Guidance on PPP Loan Processing Fees
SBA guidance regarding PPP loan processing fees
Effective July 13, 2020, the Small Business Administration (SBA) issued Procedural Notice 5000-20036, which updates prior notices and provides Paycheck Protection Program (PPP) Lenders with instructions for reporting and collecting the processing fee associated with PPP loans that lenders originated.
Lenders must use SBA Form 1502 to report when PPP loan proceeds have been fully disbursed. Once a lender has reported that a PPP loan has been fully disbursed, the SBA will begin the process of paying the fees. Lenders must have provided ACH credit information to the SBA in their Fiscal Transfer Agent (FTA) portal.
The SBA is required to pay Lenders fees for processing PPP loans in the following amounts:
- 5 percent for loans of not more than $350,000;
- 3 percent for loans of more than $350,000 and less than $2,000,000; and
- 1 percent for loans of at least $2,000,000.
Lenders will not receive PPP loan processing fees for loans that are cancelled or voluntarily terminated. Lenders may report loan disbursements, cancelled loans, and voluntarily terminated loans on a single 1502 report. Additionally, lenders are subject to clawback of the fees if the SBA determines that the borrower was ineligible or voluntarily returned the funds.
FDIC guidance for reporting PPP loan processing fees received
The FDIC released specific guidance for banks and financial institutions in the form of FAQs as follows:
“How should institutions account and report for regulatory reporting purposes fees received in connection with a PPP loan?
Institutions are reminded that for recognition and measurement purposes, the regulatory reporting requirements applicable to the Call Report should conform to U.S. GAAP. Accordingly, the accounting and reporting for fees received in connection with a PPP loan will depend on the institution’s intent and accounting for the loan.
Institutions that account for the loan as a loan held for investment should account and report the fees received as a loan origination fee in accordance with ASC Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs (formerly FASB Statement No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases”). As a result, the fee received should be deferred and recognized over the life of the related loan, or the estimated life of the related loans if the criteria in ASC Section 310-20-35 is met, as an adjustment of yield (interest income).
To the extent an institution elects to measure the loans at fair value in accordance with ASC Subtopic 825-10, Financial Instruments – Overall (formerly FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”), fees received should be recognized and reported in earnings and not deferred.
To the extent an institution originates a PPP loan with the intent to sell and accounts for the loan at the lower of cost or fair value, fees received should be deferred until the loan is sold, rather than recognized as an adjustment of yield.”
Collected processing fees are subject to Oregon Corporate Activity Tax
The SBA and the CARES Act both refer to the fees paid to financial institutions related to PPP loans as “processing fees.” Lenders that originated loans for borrowers located in Oregon are likely subject to the Oregon Corporate Activity Tax on that income.
Oregon has provided guidance to Delap that the fees, while called “processing fees,” are more appropriately classified as “loan origination fees.” This guidance is in line with the FDIC guidance, which specifically calls for the fees to be recorded as loan origination fees.
For purposes of the CAT, the proposed administrative ruling 150-317-1050 Sourcing of Commercial Activity for Financial Institutions for the State of Oregon governs the sourcing of loan servicing fees:
“(l) Loan servicing fees.
(A) Loan servicing fees derived from loans secured by real property are sourced to this state by multiplying such fees by a fraction, the numerator of which is the amount sourced to this state pursuant to subsection (d) of this section and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.
(B) Loan servicing fees derived from loans not secured by real property are sourced to this state by multiplying such fees by a fraction, the numerator of which is the amount sourced to this state of pursuant to subsection (e) of this section and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.
(C) In circumstances in which the taxpayer receives loan servicing fees for servicing either the secured or the unsecured loans of another, such fees are sourced to this state if the borrower is located in this state.”
Loan servicing fees derived from loans not secured by real property are treated the same as interest on any loan not secured by real property. Under Oregon law and more specifically for the CAT, such loans are sourced to the location of the borrower.