IBA Compliance Connection

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During the process of receiving Paycheck Protection Program (PPP) applications, none of the applicants indicated that they were using an agent. Now we have a borrower who is stating that their accountant helped them and asking us to pay the accountant an agent fee of 1%. Are we on the hook for this fee?

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No, our understanding of the PPP and existing SBA 7(a) loan requirements is that your bank would not be required to pay the agent because the borrower failed to disclose the agent and the agent’s fees on SBA Form 159 as part of the loan application.

The Small Business Act requires business owners to “certify to the Administration the names of any attorneys, agents, or other persons engaged by or on behalf of such business enterprise for the purpose of expediting applications made to the Administration for assistance of any sort, and the fees paid or to be paid to any such persons.” The SBA’s regulations and standard operating procedures repeat this requirement, as does the SBA form used for this purpose (Form 159).

Because the SBA certification requirement regarding a borrower’s use of an agent is “for the purpose of expediting applications,” we do not believe that a borrower or their accountant could demand that you pay an agent fee after the PPP loan application has been submitted and accepted.

However, as noted in a law firm’s FAQs in the resources below, this topic is subject to litigation — a class action lawsuit filed in Ohio alleges that lenders must pay agents’ fees, even in cases where borrowers did not disclose an agent. Consequently, we agree with the law firm’s recommendation to ask all PPP borrowers to acknowledge that your bank will not be compensating any agents.

For resources related to our guidance, please see:

  • SBA Interim Final Rule, Business Loan Program Temporary Changes; Paycheck Protection Program (“Agent fees will be paid by the lender out of the fees the lender receives from SBA. Agents may not collect fees from the borrower or be paid out of the PPP loan proceeds. The total amount that an agent may collect from the lender for assistance in preparing an application for a PPP loan (including referral to the lender) may not exceed: i. One (1) percent for loans of not more than $350,000; ii. 0.50 percent for loans of more than $350,000 and less than $2 million; and iii. 0.25 percent for loans of at least $2 million.”)
  • Small Business Act, 15 USC 642 (No loan shall be made or equipment, facilities, or services furnished by the Administration under this chapter to any business enterprise unless the owners, partners, or officers of such business enterprise (1) certify to the Administration the names of any attorneys, agents, or other persons engaged by or on behalf of such business enterprise for the purpose of expediting applications made to the Administration for assistance of any sort, and the fees paid or to be paid to any such persons; . . .”)
  • SBA Regulations, 13 CFR 120.195 (“Disclosure of fees. An Applicant for a business loan must identify to SBA the name of each Agent as defined in part 103 of this chapter that helped the applicant obtain the loan, describing the services performed, and disclosing the amount of each fee paid or to be paid by the applicant to the Agent in conjunction with the performance of those services.”)
  • SBA Standard Operating Procedures, 50 10 5(J) — Lender and Development Company Loan Programs, page 162 (“Section 13 of the Small Business Act (15 U.S.C. § 642) requires that an Applicant identify the names of persons engaged by or acting on behalf of the Applicant for the purpose of expediting the application and the fees paid or to be paid to any such person. SBA regulations at 13 CFR § 103.5 require any Agent to execute and provide to SBA a compensation agreement (‘Agreement’).”)
  • SBA Form 159 (“The purpose of this form is to identify Agents and the fees and/or compensation paid to Agents by or on behalf of a small business applicant (‘Applicant’) for the purpose of obtaining or expediting an application for a loan guaranteed by the U.S. Small Business Administration (SBA). This is a statutory requirement under 15 U.S.C. 642. See 13 CFR Parts 103 and 120 and SBA’s Standard Operating Procedure 50 10 for the rules governing compensation of Agents or SBA Lenders in connection with an SBA loan.”)