Forgive me, please: Strategies for turning a PPP loan into a grant
Image via flickr user Jernej Furman
Written by Franck Lopez
At the end of March, the president signed the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which included legislation for the Paycheck Protection Program (PPP).
By mid-April, the PPP ran out of funding and a second round of PPP was approved at the very end of April.
According to the Small Business Administration, which administered PPP loans, the program has supported more than 1.6 million businesses and protected more than 30 million jobs.
The loans have helped local businesses weather the economic and social disruption caused by the novel coronavirus, but businesses are yet to come out of the murky water.
Borrowers had to make sure that they were using their loans according to certain guidelines to ensure that they were fully paid, and six months after the first loans were fully distributed, forgiveness came to the fore for homeowners. ‘business.
An important note for borrowers who may be confused about an Oct. 31 deadline in the program’s loan forgiveness request: the date is not the deadline for borrowers to request a discount, according to the page. SBA Frequently Asked Questions (FAQs).
Additionally, the SBA reminds borrowers that their loan repayments are only deferred for up to 10 months after the last day of each borrower’s loan forgiveness period.
According to an example from the SBA FAQ: “A borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to request a forgiveness before the loan repayment begins. “
For business owners who have borrowed $ 50,000 or less, the forgiveness process has become much easier.
As recently as last week, the SBA released new guidelines that fully write off the debt of borrowers who have taken out $ 50,000 or less in P3 loans, provided they complete the correct documents. These borrowers will be able to complete a simplified one-page form and skip some calculations that other borrowers need to do.
“Your real small businesses, the mom and dads who really don’t need to worry about the tedious paperwork – the rule change should help make the forgiveness process a lot easier for people, including us. that bank, ”said Steve Miller, president and CEO of Fresno First Bank.
Miller said the PPP program was successful in securing funding from local businesses within a short period of time.
Fresno First Bank distributed approximately 650 loans worth approximately $ 185 million, with the average loan size being approximately $ 100,000.
Miller said that at the start of the Covid-19 pandemic, no one knew how long it would last, with the federal government dispersing loans believing the pandemic would be over in two months.
Borrowers should be aware of all the details about forgiveness, but he admits that the advice was not always clear to understand.
“The forgiveness process was about as confusing as the application process,” Miller said. “There are a lot of things you need to consider when asking for forgiveness. Not only if you qualify, but what does it do to your business? There are tax implications – a whole bunch of questions a business owner needs to think about. As the election approaches, if there is a change in administration and taxes change, you need to think about all of that.
Miller said about 20% of the bank’s applicants have so far requested a remission.
One of the biggest concerns for borrowers, Miller said, is how long it takes the SBA to make its forgiveness decision after taking the time and effort to make sure “all their ducks are lined up.”
What does the CPA say?
Frank Hambalek, partner at Wiebe Hinton Hambalek, LLP, an accounting firm in Fresno, said there was a mad rush of clients right after the PPP program was announced, trying to see if they would qualify.
Hambalek said that among the company’s clients, farmers have encountered many problems during the application process because they use labor contractors – these payments to labor contractors. work not being eligible.
Hambalek said all of their clients have already used their loans and expects the SBA to grant most of the company’s clients’ forgiveness requests.
There are some things Hambalek said borrowers should be aware of.
First, for all businesses that are still feeling the economic impact of the pandemic, the SBA still offers the Economic Disaster Lending Program, which still offers low-cost loans to borrowers.
Hambalek is also warning borrowers to listen carefully to everything that is happening in Congress to see what legislation might help them. Borrowers really need to make sure that all of their documentation is correct to provide banks with the necessary documentation to be considered for a full discount.
“I’ve been asked in certain circumstances, ‘do I need to include this or that,’” Hambalek said. “My policy has been that the more you include, the better it is to justify what you spent the money on. So yes, include everything.