Small businesses worry about PPP loan forgiveness (1)

The Paycheque Protection Program injected $ 525 billion in forgivable loans to small businesses from early April to early August. The program was rented to save jobs and support companies in difficulty and criticized for its awkward deployment, fraud, and to favor businesses with established banking relationships over under-banked businesses. In one recent report, the Government Accountability Office urged the Small Business Administration to identify and respond to multiple PPP risks, among other recommendations for other agencies to improve the government’s response to the pandemic.

One of the reasons PPP was so attractive to borrowers was the ability to turn loans into grants. For this to happen, every borrower must complete a forgiveness request and submit it to their lender, who can work with them to strengthen it. Then the lender must submit the application to the SBA. The agency has up to 90 days to review it and make a decision. The SBA began accepting pardon requests on August 10.

How many businesses have applied for and received a loan forgiveness? Politico reported September 29, that the agency “received 96,000 forgiveness requests – representing less than 2% of total loans – but neither approved nor refused any”. SBA spokeswoman Shannon Giles said on September 30 that the information came from recent testimony given to the House Small Business Committee by Bill Manger, SBA Chief of Staff and Associate Director of the Office. access to capital.

Because of changing PPP rules, there is confusion around the forgiveness process, says Brian Pifer, vice president of entrepreneurship at advocacy group Small Business Majority, which has about 65,000 members in its network. Several business groups are backing two bipartite bills that would cancel PPP loans under $ 150,000 once the borrower fills out a one-page form, according to at the American Bankers Association. There is broad support for the relaunch of PPPs as well, although the Brookings Institution suggests tax credits would be more effective, Bloomberg News reported.

What should a business owner keep in mind regarding the forgiveness process? We spoke with Chris Levy, senior vice president of Pursuit, a community development financial institution that has funded more than 7,000 PPP loans totaling nearly $ 500 million to companies in New York, New Jersey and Pennsylvania. . The median amount of his loans was around $ 20,000. Levy says his institution gave money to “the smallest of small businesses – the ones that were really struggling.” Here is his advice:

1. Take a deep breath. Borrowers are understandably eager to complete the forgiveness request and put the PPP loan behind them, says Levy. You can ask for the loan forgiveness as soon as your lender starts accepting forgiveness requests. But you should wait because Congress will likely pass legislation that will ease the forgiveness process, he says, including the automatic forgiveness of P3 loans of $ 150,000 or less.

While some lenders will accept requests, Pursuit and many others are not yet. “The main reason we wait is because we don’t think it’s appropriate not only for us to waste our time, but also for our borrowers to waste their time going through a very detailed forgiveness request. that will only get easier, ”says Levy.

2. Go over the basics. You can get a loan discount on what you spend on payroll, rent, and other qualifying expenses during the so-called covered period – the 24-week period starting the day you receive your P3 loan funds. The rules have changed considerably as the PPP has evolved: the minimum amount to be spent on the payroll is 60% (originally it was 75%). You can spend up to 40% on non-wage costs like rent, utilities, and mortgage interest. The maturity of the loan is now five years; it had been two years ago.

Once the 24 week period is over, you have 10 months to submit your forgiveness request to your lender, according to this Faq of the SBA. You don’t need to make any payments until the SBA makes a decision. If only part of the loan is canceled, or if the forgiveness request is denied, the balance owing on the loan must be repaid by the borrower on or before the loan maturity date.

3. Chew this scenario. A business owner who received a P3 loan in April could wait until December to apply for a forgiveness through their lender. The SBA might not make a decision until February. The borrower would not make any payments during this 10 month period. “The adjournment period is essentially indefinite and will not be set until the SBA makes a decision,” says Levy. “It gives borrowers more time.”

4. Keep your cool. “The only thing we found throughout this process – the more patience you have, the better the rules are for you, ”says Levy. Keep payroll records as you normally do and communicate with your lender regularly, he says. He urges business owners not to go crazy. The 3508 EZ form simplifies the rules and should work for almost everyone, says Levy. “It really made it a lot easier for everyone to get full forgiveness. The forgiveness documentation is the same one they must have used when they first requested, he says. “If they got the loan in the first place, they can get forgiveness.”

More reading: Continuation Faq
on forgiveness; Journal of Accountancy’s “Canceling PPP Loans: What CPAs Should Do Now“; Politico’s “No forgiveness: small businesses are still waiting for bailout loans“; and Bloomberg Law’s “When a paycheck protection effort to save jobs fails”.

For more stories, strategies, and tips for Main Street business owners, check out the Bloomberg Businessweek Small Business Survival Guide.

(Updates the sixth paragraph with the number of PPP delivery requests received by Small Business Administration.)

To contact the author of this story:
Nick leiber in New York at [email protected]

To contact the editor responsible for this story:
Dimitra Kessenides at [email protected]

© 2020 Bloomberg LP All rights reserved. Used with permission.

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