PPP Loan Forgiveness: Chasing A Moving Target?
If you are among one of the small business owners awaiting an answer regarding your PPP loan forgiveness application, you aren’t alone. As of September 24, 2020, the US Small Business Administration (SBA) had received approximately 96,000 loan forgiveness applications, according to the SBA’s chief of staff, William Manger[i]. Surprisingly, that is only about 2% of the total loans distributed. Already, business owners are growing frustrated with the process.
Hurry Up and Wait
Even though the SBA opened its online forgiveness portal in early August, the review process can take up to 90 days before the SBA has to remit any information to the lender. Then, the lender, filing the application on behalf of the borrower, has another 60 days to return the submission to the SBA. This is by no means a few-week process.
Another problem business owners are encountering is their lenders’ ability to process loan forgiveness applications. Some banks are still working out IT kinks in their online PPP forgiveness portals. So, even business owners who are ready to submit their application are running into technical issues outside their control that could potentially forestall or nullify their ability to have their loans forgiven. Many feel the pressures of the clock ticking as they await their chance to apply.
All in all, if you haven’t yet filed for loan forgiveness, there is no time like the present. It might very well be a game of “hurry up and wait,” but the sooner you begin the process, the sooner you can get your results.
Unfortunately, there is no way to say whether filing earlier than other applicants will increase your odds of loan forgiveness. What we do know, though, is that Manger also reported that while no forgiveness applications have yet been denied, none have been 100% forgiven, either. So, for the sake of 2021 and 2022 business planning, it may be advantageous to seek an answer sooner rather than later so you can weigh your debt to income ratio going forward.
FAQ’s about PPP Loan Forgiveness
Here are the answers to some frequently asked questions our clients have been asking regarding PPP loan forgiveness:
1) When is the deadline to apply?
Technically, borrowers can apply for forgivingness anytime, even before the end of the PPP loan’s coverage period. However, the important deadline comes ten months after the end of the covered period when the funds officially become a loan that needs to be repaid.
2) What costs can be forgiven?
Currently, only funds spent on payroll and benefits that are used within the 24-week covered period are eligible for forgiveness. Additionally, non-payroll costs cannot exceed 40% of the total forgiveness amount.
If you were an early PPP applicant, though, you may have only had 8 weeks to spend your PPP funds, since the passage of the PPP Flexibility Act that extended the coverage period for later borrowers. Check with your lender about the date you filed and when funds were distributed to see which category you fall into.
3) Should I rush to fill out my application or wait to see what happens in Congress?
There is no one size fits all answer. If you are a later borrower and have time to spare, you could ostensibly wait, take your time, and gather as much information as you can to improve your odds of PPP loan forgiveness. However, if you do not have as long of a time horizon between the end of your coverage period and the end of 10-month window, you may want to begin earlier. Of course, knowing your liabilities sooner will help with business planning for your 1 and 5-year projections.
The Bottom Line
Overall, the PPP loan forgiveness program is proving to be as easy to understand as was the initial application process—and that is, not very. There are still a number of grey areas that haven’t been clarified such as how self-employed loan forgiveness will work and how exceptions to the Full-Time-Equivalent (FTE) rule will pan out.
What we do know, though, is that documentation will be critical in the forgiveness application process. These applications are very detailed, so it’s best to keep any and all records of information that could become an issue in your application. Being prepared could veritably save you thousands when it’s all said and done.
If you have questions regarding your PPP loan forgiveness application or need help gathering the appropriate documents, contact our office today. We are always here to help and support business owners through this and other challenges that may arise.
Your Team,
RiversEdge Advisors, LLC
[i]https://smallbusiness.house.gov/uploadedfiles/manger_house_sbc_hearing_final.pdf 5 October 2020