PPP Forgiveness: Should Borrowers Apply Right Now?

Understanding the different perspectives of banks versus borrowers

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Now that the SBA’s forgiveness eligibility for Paycheck Protection Program (PPP) loans is now open, are you (and your borrowers) applying for forgiveness?

K·Coe advisors have been closely assessing the rules and monitoring for potential changes, and we fully expect more SBA guidance to be released on PPP forgiveness for small businesses in the form of frequently asked questions (FAQs).

While it may be beneficial for you to encourage your borrowers to apply for forgiveness – so that you can relieve your balance sheet of 1% loans, fully recognize the fee income and cash in on the SBA guarantee – it may be in the best interest of your borrowers to wait.

Uncertainties are prompting borrowers to wait

Some potential questions – deductibility, for example – still need to be addressed by the SBA.
Here are a few areas where PPP loan forgiveness is currently lacking clarity, or has the potential to impact your borrowers’ businesses and may be reasons for them to wait to apply:

  • A streamlined forgiveness process might be introduced as part of the Health, Economic Assistance, Liability Protection and Schools Act (HEALS Act).
  • More costs may be forgivable, as the HEALS Act also proposes expanding the allowable expenses that could be forgiven. (Note, the requirement that at least 60% of the forgiven amount be for payroll expenses would still apply.)
  • More time may be granted due to the new technology that was developed for the SBA to facilitate forgiveness and allow time for these process improvements.
  • There is time to apply for forgiveness, so there is no need to feel rushed. There’s plenty of time to apply: Borrowers can submit a forgiveness application up to 10 months after your covered period ends, which is 24 weeks after you receive loan proceeds.
  • Interest only applies to amounts that aren’t forgiven, and in the SBA’s August FAQs it was stated that payments and interest will not be due until after a decision about loan forgiveness is made.
  • The IRS has not issued further guidance as to whether expenses related to PPP loans will be tax deductible. If forgiveness is delayed, this could be something to evaluate in the 2021 tax year, as opposed to 2020.

As you can see, there is a lot of uncertainty still surrounding forgiveness that is justifying small businesses to hold off on forgiveness applications at this time. So, while it may be in the bank’s best interest to get these loans forgiven sooner rather than later, we may be stuck with these loans for quite some time.

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