Today, the U.S. Small Business Administration issued new guidance through Frequently Asked Questions aimed at helping small businesses with forgivable loans through the Paycheck Protection Program (PPP) and their lenders navigate the rules around maximum loan forgiveness.
The new PPP FAQs come as the Aug. 8 deadline to apply for a PPP loan fast approaches (funds are still available from the current round, and small businesses can apply through any SBA-approved lender). Congress and the White House are negotiating a new Covid relief package expected to both simplify PPP loan forgiveness and create a new round of PPP loans. The new round of funding, directed at helping smaller harder hit businesses, may also allow small businesses to apply for a second PPP loan. (UPDATE: negotiations in Congress have currently stalled).
Most PPP borrowers are now eligible to apply to have their loans forgiven. On Monday, Aug. 10, lenders may begin submitting their PPP loan forgiveness decisions to the Small Business Administration (SBA).
Borrowers need to apply through their lenders using SBA forms or a lender provided application. The lender will have 60 days to review and approve the application before submitting it to the SBA, which will have 90 days to review it. The SBA may ask the lender or the borrower for additional information before making a determination to forgive all or a portion of the loan.
A common question has been whether small businesses need to make payments while they await a forgiveness decision and will they be responsible for interest accrued during this period. The guidance says no. But if all or part of the loan is not forgiven, you will be responsible for repayment and accrued interest of that portion over the term of loan, now up to five years.
The rules state that as long as a borrower submits their loan forgiveness application within 10 months of the completion of the covered period, the borrower is not required to make any payments until the remittance amount is remitted to the lender by the SBA. The FAQs also make clear that while interest accrues from the date that the loan is received, the borrower will only be responsible for paying the accrued interest on loan amounts that are not eventually forgiven, according to Forbes (UPDATED).
Another confusing aspect of the PPP is knowing when payroll costs need to occur to count towards loan forgiveness. According to the latest FAQ, if payroll is incurred during the covered period, but your usual payroll run occurs after the end of the covered period, it will still count towards forgiveness. And if payroll expenses were incurred prior to the covered period, yet paid during the covered period, they are forgivable. Under no circumstances can the covered period extend beyond Dec. 31, 2020.
For sole proprietors, independent contractors, or self-employed individuals with no employees to apply, the new guidance makes it easier for them to apply as they can use SBA Form 3508EZ or the lender equivalent.
When the PPP was created in early April as part of the U.S. CARES Act, Congress mandated that businesses use the money within eight weeks or forfeit the chance for loan forgiveness. This came at a time when it was believed the pandemic would be largely subsided by the summer.
Instead, Florida and other states saw a resurgence. Many businesses had spent the PPP money to meet the terms for loan forgiveness, although they may have been better served saving it. Congress later gave businesses 24 weeks to spend the money, but it was too late for many Florida businesses and others who received their PPP loans early and spent it over eight weeks. Five months after the pandemic hit the U.S., many of them now need another loan.
Still, the PPP program has proven to have more benefits than drawbacks. From the PPP’s April 3 inception as part of the CARES Act through July 31, over $520 billion in funds have been disbursed to more than 5,400 businesses.
UPDATE: Here is a new SBDC at FIU webinar on the CARES Act, including PPP forgiveness: