The United States Small Business Administration (“SBA“) last week began to accept the paycheck protection program (“PPPLoan forgiveness requests and issued new guidelines on the loan forgiveness process and a new appeals process. But many borrowers are in no rush to submit their loan forgiveness requests amid continued confusion about the forgiveness process.
The PPP was designed to provide low-interest forgivable loans of up to $ 10 million to small and medium-sized businesses that maintained their payrolls during the coronavirus pandemic. Businesses that use at least 60 percent of their PPP loan proceeds for payroll and no more than 40 percent for rent, mortgage interest, and utilities for a 24-week period are eligible for cancellation of the total PPP loan amount – which in effect is akin to a grant from the federal government.
However, the PPP was plagued by conflicting guidance from Congress and the SBA, and the program quietly ended on August 8, 2020, with more than $ 134 billion in loan funds remaining unused. Indeed, almost every detail of the program – from how much is to be spent on payroll, to how long the loan proceeds are to be used, to what counts as an expense that can be forgiven. , to which businesses are eligible for loans in the first place – has changed since the enactment of the PPP on March 27, 2020, leaving many borrowers confused as to how, when, and even what to use the money.
The SBA attempted to clarify some of these questions on August 11, 2020, posting a series of frequently asked questions that discuss, among other things, how and when borrowers can request a rebate, what expenses are eligible for a rebate, and how to calculate their. salary and non-salary expenses for loan forgiveness purposes.
At the same time, the SBA issued an interim final rule establishing rules of practice for appealing SBA loan review decisions. The interim final rules usually provide that after the SBA has made a final decision that a borrower was not eligible for a PPP loan or has refused, in whole or in part, the request for postponement of a borrower, the borrower will have 30 days to appeal before an administrative law judge at the SBA’s Hearings and Appeals Office.
While the Frequently Asked Questions and Interim Final Rule, along with the previous guidance, answer some questions about the loan cancellation process, other questions remain unanswered, such as how to complete an application when a borrower has used all of their loan funds before the end of their 24-week covered period, whether any particular expenses can be considered salary or non-salary expenses, and what criteria the SBA will use to determine if a borrower was eligible for a loan in the first place.
Another source of uncertainty for borrowers is that Congress and the SBA could make further changes to the program. The legislation proposed in the US Senate, for example, would simplify the loan cancellation process for many borrowers and allow businesses to apply for additional PPP loans. Another bill introduced in the Senate would allow borrowers to deduct P3 loan funds used for payroll and other expenses (the bill would legislatively overturn an IRS ruling that salary costs cannot be deducted. to the extent that they are paid with PPP funds which are then canceled). Neither bill looks likely to pass anytime soon amid a deadlock in Congress.
With so much uncertainty, it’s no surprise that many borrowers are waiting to file their loan forgiveness requests, or that many SBA-approved lenders are not yet accepting forgiveness requests.
Nonetheless, there are steps borrowers can take now to ensure that their loan cancellation requests have the best chance of being approved. Hahn Loeser regularly advises clients on how to prepare their loan forgiveness requests to ensure that they benefit from the loan forgiveness to the fullest extent possible.