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Is an adverse notice required if an applicant does not meet the SBA's program eligibility and underwriting requirements?

Is an adverse notice required if an applicant does not meet the SBA's program eligibility and underwriting requirements? The SBA's Paycheck Protection Program (PPP) Interim Final Rule states: "Each lender's underwriting obligation under the PPP is limited to the items above and reviewing the "Paycheck Protection Application Form." Also, Regulation B provides an exception to adverse action for "[a] refusal to extend credit because applicable law prohibits the creditor from extending the credit requested..." (12 CFR § 1002.2(c)(2)(iv).)

A bank that declines an application for the PPP program must follow Regulation B's rules for adverse action, which are somewhat relaxed for business applicants. The SBA‘s Interim Final Rule explains what is necessary to obtain an SBA guarantee on the loan—the IFR does not appear to override or repeal ECOA and Regulation B. For similar reasons, it is unclear whether a bank could rely on § 1002.2(c)(2)(iv) to avoid giving notice of action taken. SBA’s IFR does not appear to be a law prohibiting the lender from making a loan to a business. Instead, the IFR outlines the specific conditions under which SBA will guarantee a particular type of business loan. (April 2020)

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