Small businesses eager to have their SBA Paycheck Protection Program loans forgiven could begin receiving forgiveness decisions in the coming weeks. That may ease the fears small businesses worried that they may be on the hook for the money when they are barely holding on through this coronavirus crisis.
But first, some background: Between April 3 and Aug. 8 – when the program expired — PPP resulted in $525 billion in forgivable loans for 5.2 million businesses impacted by the economic fall-out of the COVID-19 pandemic. The proceeds had to be used mainly for payroll expenses for the loan to be converted to a grant. The remainder could be used for select overhead costs.
Since the PPP expired, $130 billion has yet to be distributed, and Congress has not determined how the remaining funds should be allocated, despite mounting appeals from devastated small businesses that want to apply for a second PPP or want to apply again. Lawmakers have introduced legislation to ease forgiveness for PPP loans of less than $150,000, but it has not yet passed.
The SBA, the federal agency that oversaw the Covid-19 relief program, is responsible for approving forgiveness applications.
STILL LOTS OF TIME TO APPLY FOR FORGIVENESS
For businesses that have not yet applied for forgiveness through their PPP lender, there is plenty of time. Businesses have until 10 months after their covered period expires to apply for loan forgiveness, according to this FAQ from the SBA. Lenders have 60 days after receiving a complete application to issue a decision to the SBA, and the SBA then has 90 days to render its own determination. The SBA began accepting forgiveness applications on Aug.10.
Small business owners who have applied for forgiveness don’t need to make any payments until the SBA makes a decision. If only a portion of the loan is forgiven, or if the forgiveness application is denied, the balance due on the loan must be repaid by the borrower on or before the maturity date of the loan. The borrower is also responsible for paying accrued interest on any part of the loan that is not forgiven.
The U.S. Department of Treasury confirmed this week that the government would soon begin forgiving loans granted under the PPP after borrowers and lenders complained that the SBA and Treasury employees have failed to respond to forgiveness requests, worrying small businesses, according to a Wall Street Journal report.
Under the measure, small businesses were promised loan forgiveness as long as at least 60% of the money was used toward payroll and the rest used for other allowable expenses such as rent, utilities and mortgage interest.
FORGIVENESS DECISONS COULD START NEXT WEEK
A Treasury spokesperson said it expects the government will begin approve forgiveness requests by next week. Most loans are expected to be approved quickly, while those in excess of $2 million will get added scrutiny, the Treasury said.
The SBA said last week that it has received 96,000 forgiveness applications, but had not yet approved or denied them. The applications represent about 2 percent of the more than 5 million loans, worth $525 billion, issued under the program.
In a Bloomberg report this week, banking experts advised small businesses who have not yet applied to wait because they have 10 months from the end of their 24-week period to do so and because guidance to borrowers has been changing and may become more favorable. Congress also could pass legislation that could include automatic forgiveness for PPP loans of $150,000 or less. Be patient and communicate regularly with your lender, they advised.
According to a recent survey by the NFIB, one in five small businesses said they would have to shut down in the next six months if economic conditions don’t improve. The same poll revealed 84% percent have used the entirety of loans they received while 44% percent said they would apply or reapply for a second PPP loan if available. According to Yelp’s data, 163,735 U.S. businesses on its review website have closed since March 1, a 23% increase from July 10. Six out of 10 of those businesses have closed permanently.
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