Over the past year, millions of small businesses have benefited from the Small Business Administration's Paycheck Protection Program (PPP). The PPP loans provided much-needed support and stability to the economy and were designed to be forgiven. However, forgiveness isn’t automatically granted or guaranteed; borrowers must apply for it through their lender. For early 2020 loan recipients, an important deadline for doing so is rapidly approaching.
As I covered in my last article, borrowers can have their PPP loans forgiven in the entirety if they use funds toward eligible expenses during the applicable covered period (eight to 24 weeks from loan disbursement). At least 60% must have been spent on payroll, while the remainder can be spent on business mortgage interest payments, rent, utilities, and protective equipment, among other expenses. Additionally, borrowers must have maintained employee and compensation levels during the covered period to qualify for 100% forgiveness.
My company provided PPP loans to more than 2,400 borrowers across the country and has reviewed forgiveness applications for about 35% of them to date. While borrowers should work directly with their lenders on the forgiveness process, here are some important details to create a smooth overall process:
1. Heed dates and deadlines. Borrowers will need to know the exact dates of their loan disbursement, the end of their covered period, and the end of the grace period. The grace period (during which no payments are required) expires 10 months after the end of the covered period. Further, forgiveness applications must be submitted prior to the PPP loan maturity date.
2. Don’t wait to submit the forgiveness application. If borrowers don’t apply for forgiveness by the end date of their grace period, they will receive an amortization schedule and must start paying back the loan in monthly installments. There is generally no reason to delay applying for forgiveness once the covered period has ended—provided that PPP funds have been exhausted and expenditures are well documented.
3. Retain important documents. Borrowers should hold onto all important documents for a minimum of six years from the date of full forgiveness or loan maturity. Important documents include the signed promissory note, PPP application, and proof that PPP funds were spent on eligible expenses.
4. Know the numbers. Borrowers will need to submit the unique loan numbers on their promissory note—there’s one from the SBA and another from the lender. They will also need to know the exact amount of funds that were advanced. Additionally, borrowers must know the exact number of employees at the time of loan application and at the time of the forgiveness application. Lastly, applicants need an accurate breakdown of how the funds were spent within each approved expense category.
5. There are multiple rounds of application review. Upon receiving an application, the lender has 60 days to review the request and make its forgiveness recommendation to the SBA. The lender then submits it to the SBA, which has 90 days to finalize the decision. When SBA completes its review, the forgiveness amount approved by the SBA is remitted to the lender. Borrowers receive notification of forgiveness from their lender, not the SBA. There is the possibility that the SBA will conduct a second-level review on selected forgiveness applications. This is done at random and can result in a delay of forgiveness; the length of the delay depends on SBA workload, as well as the size and complexity of the forgiveness application.
6. Notification time varies. The waiting time for the clearance of forgiveness varies, depending on the type and complexity of the forgiveness application. Review of a streamlined forgiveness application (for loans up to $150,000) can take from a few days to a few weeks, while review of the longer version of the application can take up to four weeks or longer.
Applying for forgiveness is the final step in the PPP process, and it all comes down to the details for borrowers who want to have the maximum amount forgiven. With this guidance, borrowers should feel more confident about their chances of getting most—if not all—of their PPP loan forgiven.
Mark Schmidt is CEO of Fund-Ex Solutions Group, an SBA Preferred Lender and one of only 14 non-bank lending companies licensed by the SBA to offer 7(a) loans and the Paycheck Protection Program.