U.S. lenders issued more than five million forgivable loans through the federal government’s coronavirus aid initiative for small businesses, the Paycheck Protection Program. The Small Business Administration in August started accepting applications to have the loans forgiven, and it began approving them this month. Here are some things to know.
How can I apply?
PPP borrowers should apply for forgiveness through the lender that issued the loan. The lender then submits the application to the SBA, which makes the final determination on how much forgiveness a borrower should receive.
Submission procedures vary by lender. Some lenders have just begun to accept applications or have currently opened up applications to select borrowers.
For example, JPMorgan Chase, the top PPP lender by dollar amount, is emailing customers on a limited basis and inviting them to apply based on when they received their PPP funds, according to Jen Roberts, chief executive of Chase Business Banking.
“This has helped us test the SBA’s submission process and identify some common pitfalls that we can help customers avoid,” Ms. Roberts said.
Other lenders are still working to get technology and personnel in place before they start accepting applications.
Borrowers may apply for forgiveness at any time before the loan’s maturity date. However, to avoid having to start loan payments, PPP borrowers must apply for forgiveness within 10 months of the end of their covered period. The covered period began on the loan disbursement date and is either the subsequent 24 weeks, or eight weeks for some eligible borrowers who opt for this time frame.
What is required to have a loan forgiven?
To have the full amount forgiven, borrowers must spend at least 60% of their loan on payroll costs and may use the remainder of the funding for other eligible costs, such as mortgage interest, rent and utilities. The amount of forgiveness may be lowered if the business reduced its employee head count or cut salaries and wages.
Borrowers should prepare to apply by gathering documents and taking stock of how much of the loan they have spent on allowable expenses, focusing especially on payroll, said John Asbury, chief executive of Atlantic Union Bank, a Virginia-based lender that issued about $1.7 billion in PPP loans.
“See how much of this you can have forgiven based on your payroll alone, before you start thinking about your other eligible expenses,” Mr. Asbury said. “If you can get the whole thing forgiven based on your payroll, you’re done.”
Lisa Simpson, director of firm services at the American Institute of Certified Public Accountants, said some payroll-processing companies offer reports customized to provide the information needed for the forgiveness application, so borrowers should see if that service is available to them.
Borrowers may also need documentation of other eligible expenses, such as utility bills and lease agreements.
What is the application like?
The SBA and Treasury Department have issued three different application forms, and which one borrowers should use depends on the nature of their business, their loan size and whether they reduced employee head count or salaries and wages.
The full forgiveness application and the EZ application both require the borrower to calculate their forgiveness amount, make certifications about how closely they followed program guidelines and submit supporting documentation. The full form is longer and more complex, but only certain borrowers are eligible to use the EZ form, such as those who are self-employed with no employees or those who maintained salaries and wages and head count at certain levels.
The third and most recently released application, Form 3508S, is for loans of $50,000 or less and “streamlines the PPP forgiveness process to provide financial and administrative relief,” the SBA said.
Similar to the other applications, Form 3508S asks borrowers to make certifications and to submit documentation to the lender.
A key difference: Form 3508S “is less about the calculations and more about the certifications,” said Greg Clarkson, SBA division manager at BBVA USA. “While the documentation is still required to be gathered and provided, it is not required to be reviewed [by lenders] to the same extent that it was in either the EZ form or the full form.”
Importantly, borrowers who use Form 3508S won’t face any reductions in their forgiveness amount if the business lowered head count or wages and salaries.
Several lenders and organizations are providing resources such as checklists, webinars and online calculators to help borrowers understand how much forgiveness they might qualify for and which of the application forms to use. Some of these tools are free of charge.
How long will it take to get an answer?
A lender has 60 days to review the borrower’s application and submit it to the SBA. The agency then has up to 90 days to review the submission and issue a decision. The agency said it “expects to address the majority of forgiveness decisions in a timely manner.”
Anything else to know?
Amid contentious negotiations in Washington over more coronavirus aid, many PPP lenders and small-business advocates are lobbying the Trump administration and Congress to further simplify the forgiveness process for loans under $150,000.
Some lenders are “being careful not to put people through the process now where it’s essentially a full-on forgiveness process that could potentially be difficult to navigate, when new guidelines could be coming out,” said Ryan Battles, a principal in the technology consulting group at the accounting firm Ernst & Young, which has been helping several lenders set up their forgiveness portals.
Given the legislative uncertainty, Atlantic Union Bank has opened forgiveness applications only to borrowers with loans over $150,000 and is letting customers with smaller loans know that it may make sense to hold off on applying, according to Alison Holt-Fuller, the bank’s head of product management.
Still, Ms. Holt-Fuller said there may be benefits to starting the process sooner rather than later.
“If you’ve already ended your covered period, then everything is fresh,” Ms. Holt-Fuller said. Borrowers may “lose track of the accounting perspective of it” by waiting, she said.