We have seen firsthand how the cash infusion from the Paycheck Protection Program, or PPP, has kept companies afloat since the pandemic struck. However, as just about every business has experienced, the goalposts on the program have been constantly moving, and as we sit today, there are far more questions than answers, particularly around forgiveness. So, what should a business with a PPP loan be doing right now?
A Little Context
- Coverage Period - The PPP Flexibility Act was passed in May and increased the coverage period with which businesses could spend qualified PPP loan funds and still be eligible for forgiveness. So, for the vast majority of businesses, the period through which they will be evaluating forgiveness will be 24 weeks from when they received their PPP loan, and for early recipients, that timeline is fast approaching. And there is no requirement to wait the 24 weeks if all the funds are spent.
- Bank Applications - A majority of banks are still holding off on accepting forgiveness applications pending further guidance. Some banks are accepting applications while others are notifying customers of simply what to prepare.
- SBA Status – As of right now, the SBA forgiveness portal is open, but based on our understanding, applications are just sitting in the queue and none are currently being processed for forgiveness.
- Additional Legislation – A broader COVID relief package continues to stall in Washington. However, there has been bipartisan support for additional changes to the PPP, including automatic forgiveness below a dollar threshold (thought to be $150,000), as well as further streamlining of forgiveness for businesses with loans under $2 million. Discussions continue and forms of this legislation could still pass separate from a larger bill.
- There is no requirement to make payments on the loan until the SBA issues a decision on forgiveness of the loan.
Actions You Can Take
As we sit, there is still a good bit of uncertainty, however, there are steps to take until the dust settles.
- Be Patient – The goal is as much forgiveness as possible. There are some cases where an answer on forgiveness is needed ASAP, for example in the case of a business sale. But for the vast majority of companies, there is very little downside to waiting. Best case scenario, the forgiveness process becomes easier to qualify for. Even if no change, waiting will prevent the intensive effort to compile every piece of information, complete applications, etc. when requirements could change. Few businesses find themselves with tons of spare time – resources are likely better spent elsewhere.
- Your Lender – Talk to them. Understand where they are at in the process. Many inboxes are full of different educational resources. These can provide good info, but remember, as with initial loan applications, loan forgiveness is being administered through your bank. Their requirements are the ones that will ultimately matter. You may have been receiving updates from them already but reach out to your lender and find out their approach. It may allow you to start preparing some information to get out ahead of things. It is also an opportunity to ask questions about your specific situation. They may not have all the answers yet, so check in periodically. They are one of your best sources of information. Be cautious to take action based on what other businesses are doing – their lender, and situation could be far different.
- Be prepared with basic forgiveness calculations and supporting information. The PPP guidelines do require that records be maintained even after forgiveness is granted. Most payroll companies have canned reports related to PPP that can be pulled. Have a copy of your lease agreement, mortgage statements and other documentation handy. This should not require a material amount of effort, and then once more guidance is obtained, fine tuning can occur.
- When it does come time to submit, make the submission as easy as possible to understand. Spell things out clearly, provide the required documentation – the volume of applications for forgiveness will likely be high. Once you do understand exactly what is needed, make it as easy as possible to grant forgiveness.
Just like with the original PPP loans, it is in the best interest of the bank for their clients to achieve forgiveness. The process is still very fluid. Both banks and the SBA itself do not have the resources to manage through an extensive forgiveness process. As such, it would seem more changes to simplify the process are coming. What we do not know is what and when. While not easy, an educated waiting game is likely the smartest, least disruptive course of action.