PPP Loan Forgiveness: Change, Change, and More Change!
The first Paycheck Protection Program (PPP) loans were disbursed after April 3, 2020, so thousands of US small businesses are approaching the end of their 8-week covered period for the purpose of PPP loan forgiveness.
An extension of time allowing small businesses to spread their PPP loan proceeds beyond 8 weeks, and the ability to use more of the proceeds for other operating costs would be welcomed by many businesses encountering challenges in spending PPP loan proceeds on 75% payroll over 8 or fewer weeks (for shuttered small businesses), while maximizing loan forgiveness.
House bill H.R. 7010 was approved on May 28, 2020, to extend the PPP loan forgiveness covered period from 8 weeks to 24 weeks and require that 60% of funds be used for payroll expenses, rather than the 75% currently required. The proposed Senate bill S. 3833 would extend the period to 16 weeks and not change the payroll requirement. Congress may delay voting on larger bills such as the HEROES Act until July, however, the Senate may vote on S. 3833 this week to provide additional relief to small businesses, many of whom were shuttered during the first weeks of their PPP loan 8-week covered period.
PPP Loan Payments
To add to the confusion and anxiety caused by the nearly weekly PPP loan forgiveness guidance issued by the SBA and Treasury, small businesses are now being informed by their banks that PPP loan payments will begin as early as November 2020, with payments due for 18 months. The payment amount is based on the assumption that none of the PPP loan principal is forgiven. If part of the principal is forgiven, the bank will re-amortize the loan and provide a new payment amount. If the entire PPP loan principal is forgiven, presumably the bank will reimburse the loan applicant.
At this time, there is not a required time-frame for applicants to request loan forgiveness, however businesses are permitted to submit loan forgiveness applications at the end of their covered period, even before they are able to attest to restoring full-time equivalents by June 30, 2020. To further complicate matters for borrowers, the lender has 60 days from receipt of a complete application to issue a decision regarding loan forgiveness to the SBA and request payment from the SBA. The SBA has an additional 90 days to review the loan or loan application and then remit the appropriate forgiveness amount plus interest to the lender, if approved. Small businesses could potentially be required to make PPP loan payments for five or more months, while waiting for PPP loan forgiveness approval, and reimbursement for loan payments.
The interim final guidance offers some reassurances to PPP loan recipients. The SBA recognizes that it is critical to meet lenders’ and borrowers’ need for clarity concerning loan forgiveness requirements as rapidly as possible. Additionally, the interim final guidance states that providing borrowers with certainty on SBA’s process for reviewing PPP loan applications and loan forgiveness applications will enhance borrowers’ ability to determine whether, and to what extent, they should apply for PPP loans and loan forgiveness, and thereby carry out the purposes of the CARES Act in keeping their workers employed and paid, while at the same time taking necessary steps to maximize eligible loan forgiveness amounts.
Lenders are expected to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness. For example, minimal review of calculations based on a payroll report by a recognized third-party payroll processor would be reasonable. By contrast, if payroll costs are not documented with such recognized sources, more extensive review of calculations and data would be appropriate.