The 24-week period for many of the original Paycheck Protection Program (PPP) loans ended during the month of November. Those who elected for an 8-week program, or have exhausted their funds, may have begun the process of applying for forgiveness even though there is plenty of time left. Fortunately, the application process for loan forgiveness has operated much more smoothly than the original loan application period.
PPP loans were created to incentivize small businesses to retain employees by helping cover payroll costs as many businesses were forced to shutter during the COVID-19 lockdown. These loans also covered mortgage interest payments or rent, along with utilities to help businesses stay afloat. Treasury Secretary Steve Mnuchin stated, “The PPP has provided 5.2 million loans worth $525 billion to American small businesses, providing critical economic relief and supporting more than 51 million jobs.
PPP Loan Forgiveness Application Deadlines
While borrowers who received their loan prior to June 5, 2020 could have elected for an 8-week or 24-week covered period, loans funded on or after June 5th meant waiting until November (or later) to apply for forgiveness. Keep in mind that loan payments may be deferred for up to 10 months following the end of the established loan period. It is also important to note the covered period begins the day the loan was funded.
In October, the Small Business Administration (SBA) released a new loan forgiveness application, making it easier for those with PPP loans of $50,000 or less. Banks have begun the initial phase of accepting these PPP applications from borrowers even though the time to apply depends on the bank and when the PPP covered period ends. For example, Bank of America will not take submissions until the covered period ends, while other banks will accept applications after the PPP funds have been exhausted. Most banks encourage borrowers to prepare the application for loan forgiveness immediately following the end of the loan period and collect the necessary documentation in preparation. The SBA has provided a fillable questionnaire to assist the application process.
According to the SBA, there are an estimated 3.57 million outstanding PPP loans of $50,000 or less, totaling approximately $62 billion of the $525 billion in PPP loans. The SBA suggests borrowers contact their PPP lender to obtain the correct form. They will provide either the SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a lender equivalent. The expiration date listed on the application forms has created some confusion. Essentially, it is a temporary date required by the SBA’s Paperwork Reduction Act, and each month a new expiration date is placed on the forms.
Borrowers may apply for forgiveness any time before the maturity date of the loan, which may be two to five years from loan origination. However, applying after the 10-month deferment means a borrower must begin making payments on the loan. While the SBA has 90 days to review and approve the applications, lenders have seen a much faster turnaround time.
PPP Loan Integrity
Businesses holding loans that exceed the $50,000 threshold require additional documentation to apply. Borrowers are encouraged to maintain close contact with their lenders as each may have developed its own evaluation and process procedures in addition to those required by the SBA. Businesses that received $2 million or more in PPP loans must complete one of two required loan necessity questionnaires, SBA Form 3509 and SBA Form 3510. The SBA recently offered additional guidance on these sizable loans. (See Rev. Rul. 2020-27 on PPP Loans and Taxes)
The U.S. Treasury maintains that all loans above the $2 million mark will be subjected to additional scrutiny under the current audit plan. Additionally, the Department of Justice established a fraud team as soon as PPP loan applications became available. Any amount of fraud has been strongly discouraged. It is important for borrowers to consult with their tax accountant, in addition to their lender, to ensure the application process completed accurately.
For more information on the Paycheck Protection Program, visit the SBA website.
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.