This seems to be the mantra that we have been preaching for months – and “wait for it” remains the best advice we can give today.
The process-in brief
The Paycheck Protection Program (PPP) loan forgiveness process requires borrowers to submit applications for forgiveness to the bank (or other lending institution) that funded their PPP loan. That lender must review the application and supporting details, ultimately making a decision as to the forgiveness that they believe is supported by the application. The lender then must upload the application package and their recommendation to the SBA for SBA review and a final forgiveness decision.
Although a few lending institutions have opened up their portals to accept the borrower applications, many have not and have expressed no intent to rush to do so. We do believe the SBA system that will receive uploaded applications from the lenders may have recently opened.
Many PPP loan recipients are well beyond the original 8 week covered period for spending the loan proceeds on eligible costs. Of course, we all know the program was amended replacing the now optional 8 weeks with a default 24 week covered period; and we are still weeks away from the end of a 24-week period. Many borrowers have already spent their funds and would like to get the forgiveness confirmed. Our recommendation is its best to wait just a bit longer.
Forgiveness applications are not due until 10 months (that is months, not weeks) after the end of the selected covered period. So even if you believe you can qualify for full forgiveness under the original 8 week covered period, your application for forgiveness won’t be due before March 2021! And rest assured that any interest accruing on PPP loans (at 1%) will also be forgiven proportionately to the forgiven principal. From a borrower’s cash flow perspective, no payments will need to be made on PPP loans until a final SBA forgiveness decision is made on a forgiveness application or, if that forgiveness application is never filed, 10 months following the end of the 24 week covered period. Stated differently, if a borrower files for forgiveness sooner rather than later, payments for unforgiven balances and related accrued interest will be due shortly after the SBA forgiveness decision is received. So logically, if you want to delay the cash outflows to repay the loan – wait and file for forgiveness closer to that 10 month mark.
As to developments involving the calculations for PPP loan forgiveness, as recently as August 4 and August 11 the SBA released additional guidance on forgiveness-related questions. Slowly some of the ambiguity in the requirements and definitions are being cleared up, but other questions remain. Ultimately, we expect that some gray areas may be left to the individual lenders to decide – adding more complexity to navigating the forgiveness process. Additionally, I am certain you are all monitoring the continuing debates in Washington DC about some level of automatic forgiveness for smaller loans and a possible second PPP loan program – how these debates will impact forgiveness of the existing loans will likely continue to evolve into September. Regardless, the potential for additional legislated changes is undoubtedly a distraction of Treasury and SBA resources, delaying them from tightening up and moving forward with the process.
At this stage, we recommend that all borrowers assemble their information in sufficient detail for the application process. For those with smaller loans, it makes sense to just sit tight and wait to see what the automatic forgiveness cap will be. These smaller borrowers will likely still need to submit some reduced level of details with their forgiveness application, and will be obligated to maintain comprehensive documentation on eligible costs for a number of years. For those borrowers with loans in excess of $150,000, now would be a good time to evaluate the several options to determine what will provide the greatest forgiveness. Variables such as the 8 vs 24 week covered periods in combination with actual and expected workforce changes can impact when forgiveness is maximized. Forgiveness is valuable – so planning is essential. And this planning analysis will ease the uncertainty about what forgiveness the borrower can expect, or what actions should be taken in the last few weeks to improve the forgiveness conclusion.
How DHJJ Can Help
Your DHJJ CPAs are regularly monitoring the SBA and Treasury sites for clarification. We can help you assess the completeness of your assembled information and advise you on complicated analyses regarding forgiveness reductions for wage/salary levels, FTE measurements and eligible costs (nature and timing constraints).