Bruce Claassen

May 29, 2020

The U.S. House approved legislation 417-1 on Thursday that if passed will make it easier for small businesses and other borrowers of Paycheck Protection Program (PPP) loans to qualify for forgiveness of those loans.

 

The House bill, called the Paycheck Protection Flexibility Act, H.R. 7010, extends the time PPP recipients have to spend their funds from eight weeks to 24 weeks.  It also lowers the portion of PPP funds borrowers must spend on payroll costs to qualify for full loan forgiveness from 75% to 60%. 

 

There is a bill in the Senate that is supposedly close to a vote that would double the covered period of PPP spending to 16 weeks but not change the 75% payroll requirement. The Treasury Department has stated that they still support the 75% threshold.  

 

These bills are being driven by critics of some components of the original legislation and subsequent guidance issued by the SBA and Treasury Department.  They claim that the eight-week loan forgiveness period doesn’t offer enough flexibility for businesses who have been affected by state and local government shutdown orders.

 

The House bill also more than doubles the minimum term period for the loans from two to five years and allows businesses whose loans are forgiven to delay payment of payroll taxes, which is currently not allowed.

 

On Friday, May 15, 2020, the SBA released the official forgiveness application, Form 3508.  The document is eleven pages of forms, schedules, and instructions that created as many questions as it answered.   

 

On Friday, May 22, 2020, the Treasury Department released 19 pages of additional guidance on the forgiveness process.  This new guidance provided insight into the eligibility review process on PPP loans, and also explained how the forgiveness process will work.  While it was originally believed that Lenders would calculate the forgiveness, it is now understood that each borrower will be responsible for calculating their forgiveness amount and providing the necessary documentation.  The lender will perform a "good-faith review" and ensure all documentation has been provided and then submit to the SBA for review and approval.

 

It is important to note that the lender will have 60 days to make a determination after all documentation is received.  If they request more documents from the borrower, they get 60 more days.  Once they submit the forgiveness application and documentation to the SBA, the SBA will have 90 days to approve (or not) forgiveness.  That means the above process may take up to 150 days, or even 210 days.  The thing that all businesses need to keep in mind is that loan payments may start coming due while the lender and SBA are determining whether forgiveness is allowed.

 

Obviously, the pending legislation mentioned at the outset of this post could have a major impact on the forgiveness process.  The Senate hopes to vote early next week, so we are hopeful that answers will be coming by the end of next week.  While some of the historical data can be gathered for the forgiveness calculations, some businesses/organizations may want to hold off on some parts of the forgiveness application as there may be many changes if/when the above legislation is passed.

 

If you have not applied for a PPP loan, yet, but believe you may be eligible, there is still time to apply.  As of 5 p.m. ET on Wednesday, the SBA had approved nearly 4.5 million PPP loans totaling more than $510.5 billion. More than $135 billion in PPP funds remained available for additional lending as of Wednesday.

 

If you have questions about the forgiveness process, please give us a call.  We are ready to help you navigate the maze.