Ready to seek forgiveness for your Paycheck Protection Program loan? The government has made it easier for some businesses to do so by reducing the amount required to be spent on payroll expenses to 60% and allowing the rest to be used for qualified business expenses such as rent and utilities. Partial forgiveness is still available if that calculation isn’t met. And borrowers can now extend the initial 8-week period for spending the money to 24 weeks.
Here’s what they need to know in order to streamline the forgiveness process, according to New Orleans-area bankers:
- Lenders can’t process forgiveness applications until the U.S. Small Business Administration tells them how to submit them. The SBA had an E-tran system for submitting PPP applications but has not yet issued guidance for sending forgiveness forms. “We don’t want to start when we can’t seek forgiveness yet,” said Chris Ferris, president and CEO of Fidelity Bank. “We are telling clients that we don’t have the technical piece yet from the SBA, so have your form and documents ready and the things you have collected, and as soon as we have that technical piece ready we will be ready to submit.”
- There are 2 forgiveness forms. One of them is a 2-page “EZ” form for borrowers that:
- Are self-employed and have no employees, or
- Did not reduce their employees’ salaries or wages by more than 25% and did not reduce their employees’ number or hours, or
- Experienced reductions in business activity due to health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.
Borrowers that have employees and reduced salaries or wages by more than 25% will not be able to use the EZ form. They’ll need to fill out a longer, 4-page form and provide more explanation and detail about how they used their loan. For example, if the borrower offered workers their jobs back but they refused to return, the longer form will need to be filled out and documentation of the offers will be expected.
3. Borrowers should gather documentation now. This includes business receipts, proof of payroll, statements that show clients have been paid, written offers to employees who refused to return, rent and mortgage statements and bank statements that show where expenses have gone. Borrowers should “use the online tools provided by their lender or the SBA, be detailed in following the instructions in the application and try to help the banker connect the dots between the calculated amounts requested for forgiveness and the documents uploaded to support those calculations,” said Ron Samford, president and CEO of Metairie Bank. “Then be patient and respond quickly to follow-up calls and emails requesting additional information.”
Ferris said borrowers should have a statement of why it was required of them to receive PPP funding. “For example, they had no access to capital, sales were down, or they were forced to close and what date that occurred,” he said. “I believe the SBA will be looking for that as part of the forgiveness.”
4. There is no blanket forgiveness as of yet. Although banking groups have lobbied for forgiveness for loans of under $150,000, the SBA and Treasury have not issued a response. The Treasury has said that loans under $2 million will be considered made in good-faith and will likely not face audits. Bankers are still hoping that the ever-changing program will at some point allow most of the loans to be forgiven. “It’s up to the government to decide, but that would make our job a lot easier on the back end,” said John Zollinger, New Orleans market president for Home Bank.
5. The deadline to apply for a PPP loan is Tuesday, but there might be a future program to offer assistance. “We keep hearing talk, because of the rising (virus) cases, that if we have to continue in this climate or go back into Phase 1 (restrictions) or quarantine, businesses are going to attempt to outlive those PPP funds,” Ferris said. “Some of them may request additional help, and you could see another program potentially launch.”