August 8: Applying, Loan Forgiveness, And The New PPP
- August 3, 2020
- Posted by: Huu Tri Nguyen
- Category: Economics, Finance, Tax & Accounting
Small businesses still have until August 8 to apply for potentially forgivable loans via the Paycheck Protection Program (PPP), which was extended from its original June 30 deadline. While a second PPP is under consideration in the Continuing Small Business Recovery and Paycheck Protection Program Act, part of the HEALS Act in the Senate, it’s more restrictive and the available amounts are smaller. The law’s adoption is far from certain, but it does at least set the minimum provisions around the negotiations in Congress for a second PPP.
To find out what small-business owners and nonprofit executive directors need to consider before submitting a PPP application, and what relief program could be next to apply for, I sought insights from Greg Reibman. He’s the president of the Newton-Needham Regional Chamber in the suburbs west of Boston, and in that role he regularly fields questions from businesses about PPP loans.
- What’s the attitude of local small companies to the PPP? Has it changed since the deadline was extended to August 8?
The PPP rollout was very frustrating. The rules were vague. We’re at almost 50 FAQs on the PPP from the US Small Business Administration (SBA). That gives an indication of how often the feds have had to update their guidance.
All that said, the PPP has been a lifesaver for many of our businesses through the spring and summer. We’re recommending that businesses or nonprofits that have not yet applied should strongly consider doing so before the August 8 deadline. If you follow the spending rules, your entire loan can be forgiven, meaning you don’t have to pay it back. But you do need to be sure you understand the requirements and stay on top of any changes.
And as of July 31, the SBA said it still has $130 billion left to lend. Most of the most recent applicants “are the smallest of the small,” according to one SBA official. So if you haven’t applied because you may not have thought your operation isn’t large enough, go for it!
- The PPP has been extended before. Might it be extended beyond August 8?
There’s a saying here in New England, attributed to Mark Twain: “If you don’t like the weather, just wait a few minutes.” The same seems to apply to the PPP rules and deadlines. Given that there’s $130 billion left, (any unallocated money would go back to the US Treasury) I suppose an extension is possible. But why risk it? Apply now.
However, since you asked, both the House Democrats and the Republican Senate have proposed a PPP extension through the end of 2020 and some revisions.
The House plan expands PPP eligibility to include all nonprofits and local news broadcast entities. It also expands forgivable expenses to include PPE and employee protection costs related to the Pandemic.
The Senate plan expands forgivable expenses to include covered supplier costs, covered worker protection expenditures, certain operations expenditures, and group insurance costs that are part of payroll costs. It also expands PPP eligibility to include: Chambers of Commerce (we like that!), destination marketing organizations, quasi-government entities, and other 501(c)(6) organizations, with some caveats. [See a section-by-section summary of the Senate version.]
- As it seems there will be a new PPP program soon, should a company still try to apply before August 8? Or is there is no rush?
First, your question assumes that our leaders in Washington DC will agree to something! I’m never that optimistic. But even if they do, some businesses may be eligible for both PPP 1 and PPP 2. So, while I hate to sound like a broken record, apply for PPP 1 now. Then hope PPP 2 comes along in case you need it as well.
What may be helpful, too, is that back in June the SBA revived its Lender Match online tool to help underserved and disadvantaged small businesses and nonprofits. In its news release, the SBA described the tool as a resource for “pandemic-affected small businesses who have not applied for or received an approved PPP loan to connect with lenders.”
And for those of you who’ve received a PPP 1 loan and are crossing your fingers hoping a second PPP round becomes available, know that under the US Senate’s just-released stimulus plan, not every business which received the first round would qualify for the second. Under the GOP plan, loans would be limited to small businesses with 300 employees or fewer (rather than 500 or fewer under PPP 1). Funds would also be set aside for businesses with 10 or fewer employees.
You’d have to demonstrate at least a 50% revenue decline in the first or second quarter of this year, compared to the same quarter last year. The original PPP has no requirement to show a specific revenue decline, although you need to make certain certifications, such as on business necessity for the forgivable loan.
- What else appears to be the difference between the first PPP, with the application deadline of August 8, and the new one that may become law, assuming the Senate GOP version is the general outline of the next PPP?
As with the original PPP, your maximum loan size would equal 2.5 times average total monthly payroll costs. However, the loan is capped at $2 million. Businesses that received a PPP loan may not receive another PPP loan that aggregates to more than $10 million, the maximum under the original PPP.
Here’s the good part: Under PPP 2, businesses could use the funds to purchase protective equipment for employees and customers, including masks and sanitizers. They’d also be able to use their funds for updated ventilation. A one-page summary from the Senate explains more about the PPP Second Draw Loans and the PPP improvements in this potential new law.
- The first PPP, with the August 8 deadline, still has funds. Is there a list of banks or websites that still want applications?
An SBA official here in New England said there was still $130 billion left in the fund as of July 31. That number surprised me, given that June 30 the agency reported having almost $132 billion in unallocated funds. So yes, there’s still billions of dollars available. This tool on the SBA’s website can help you find an eligible lender.
[The most recent SBA data, dated July 24, reports that over 5,005,261 loans have been made from 5,458 lenders and confirms that the PPP still has almost $130 billion in unallocated funds.]
- If you don’t want to pay a lawyer or accountant to do the initial PPP loan application, given the August 8 deadline, how hard is it to understand and do yourself? Is there any way to get free guidance on what to do?
From what I’ve heard, most small businesses have been able to apply just with the help of a local banker, but really it’s going to depend on your circumstances, how much time you have, and your ability to dig out some financial history. The trickier part may be after you get the loan. You want to make sure you follow the rules so you can exercise the forgiveness features. This would mean you wouldn’t have to pay any or most of it back.
Check with your local SBA office for a list of partners who offer free advice. Or search online for one of the many webinars or how-to articles presented by law firms, accounting firms, and others. Just be sure and select a credible source.
- If a small business has reopened and generated revenue, can it still meet the qualifications for a PPP loan?
Yes. Your business does not need to be closed to apply. In fact, this program is really designed to help you open and stay open during this down period.
- Are these SBA loans really forgivable and tax-free? If you qualify for loan forgiveness, you don’t need to pay it back?
Yes, as long as you carefully follow the guidelines and spending restrictions.
- The rules seem to have loosened since the first PPP was announced and launched. What’s different now in how and when a business can spend the money?
This is actually refreshing news. In June, the House and Senate both overwhelmingly agreed to revise the program with the Paycheck Protection Program Flexibility Act. This law lowered the portion of the PPP loan that must be spent on payroll to 60% from 75%. The rest must be spent on rent, utilities, and other business-related expenses. That law also did the following:
- Extend from 8 to 24 weeks the amount of time you can use the funds while remaining eligible for loan forgiveness
- Extend from 2 to 5 years the time new PPP loans must be paid back if the amount provided doesn’t convert into a grant (i.e. the forgivable part of the loan)
- Loan forgiveness remains possible if former employees won’t come back to work, or if revenue in December 2020 is below February 2020 levels
- Payroll tax deferment is now allowed too
The Continuing Small Business Recovery and Paycheck Protection Program Act does not change these rules, if you’re eligible to get a forgivable loan under it. And as I mentioned above, in Question #2, some in Congress want to expand eligibility even further.
- Can companies use the PPP loan funding only for payroll to make it all forgivable?
No. Up to 40% can be spent on non-payroll expenses.
- On July 6, the US Treasury and Small Business Administration (SBA) released the namesand loan data of over 650,000 businesses that received forgivable Paycheck Protection Program (PPP) loans of more than $150,000. What’s the attitude and response of the companies in your area when their names appeared on this list?
Oh boy, this is a tricky one. There’s been multiple complaints that the data the SBA released was incorrect or drew incorrect conclusions. I fully appreciate the need to be transparent with how taxpayer dollars are spent, but this process was flawed at best
[For more about protecting your business from negative publicity about taking a PPP loan for coronavirus financial relief, and also separately prevent fraud accusations, see my Forbes.com articles Paycheck Protection Loan Backlash: How To Defend Your Business Reputation And Avoid Getting Shake Shacked and Federal Charges Of PPP Loan Fraud Are Here To Remind You These Loans Are Not “Free Money”.]
- I’ve heard that after you get the loan funds, the applicationfor loan forgiveness is much longer and more challenging. Is there any short form of it? Will this change also when there’s the new PPP?
According to the SBA, three quarters of all applicants can use the EZ version. Here are the requirements:
- Are self-employed and have no employees; OR
- Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
- Experienced reductions in business activity as a result of health directives related to the Pandemic, and did not reduce the salaries or wages of their employees by more than 25%
Continuing the Small Business Recovery and Paycheck Protection Program Act would also simplify the forgiveness application and documentation requirements for smaller loans under $150,000. You would not need to provide documentation required by the CARES Act. It does not quite make loan forgiveness automatic. You must attest to a good-faith effort to comply with Paycheck Protection Program loan requirements, you have to retain relevant records for three years, and you may need to complete and submit demographic information.
Borrowers with loans between $150,000 and $2 million also do not need to submit the documentation but must but must complete the certification required by the CARES Act. To ensure against fraud, the SBA can still audit and review loans of any size. [For more details on loan forgiveness, see Section 104 in the section-by-section summary of the Senate bill.]
- Do I need to rehire all of my employees to make the loan forgivable? Can I still fire, or give bonuses to, those that work for me?
You do not need to rehire all the employees you laid off, or restrict your firing or rewarding of employees, which is confirmed in SBA guidance.
- Can a nonprofit or charity apply for the PPP? Would it be a forgivable loan? Are the rules different?
Yes, 501(c)(3) nonprofits are eligible, following the same rules.
- How does the Economic Injury Disaster Loan (EIDL) Emergency Advance differ from the PPP?
PPP loan recipients are also eligible to participate in the recently reopened EIDL program, as long as the two loans are for different purposes (so you don’t use the EIDL for payroll). While you must apply for a PPP loan through an SBA-approved lender, you must apply for EIDL directly through the SBA. You will hear directly from the SBA via email. Landlords and nonprofits are eligible for EIDL. This is big, since landlords couldn’t apply for PPP. The “EDIL Advance Program” is closed.
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