When Will My Bank Forgive My PPP Loan?
You did what you thought was best in April and took out a Paycheck Protection Program (PPP) loan to save your staff. The promise that the loan can be forgiven was the most appealing aspect. The program was supposed to be done by June 30th. We’re now more than a month past that date. Why hasn’t your bank forgiven your loan?
The PPP program continues to exasperate businesses, politicians and their advisors. The action does not match the rhetoric. There is no shortage of official interim final rulings. The government routinely delayed or missed by weeks the timelines they set for guidance. Moreover, the complicated and confusing process of seeking forgiveness is undermining the intent of the law, keeping employees on payroll (not unemployment).
This post is an update of what you can do now in preparation for seeking forgiveness.
To understand where we are today, we must understand how we got here.
With the looming threat of millions of deaths across America due to COVID, the government took an unprecedented step of shutting down private businesses in most states. Losing a primary income for an employee is devastating so the trade-off from the government is they would provide a way for businesses to keep their staff employed while the nation endured an unprecedented shutdown of its businesses.
The plan from congress was to fund the paychecks through an existing network of financial institutions that could administer the funds and manage the paperwork. While the lending institutions worked tirelessly, the SBA and Treasury were tasked with managing the implementation and approval of these funds. At $350 billion, the program was gigantic and it only grew from there.
Climb aboard the giant PPP ship.
To describe this program differently, let’s say the PPP were a ship being commissioned. Congress is the one who funded it and created the rules through the CARES act. Congress has some serious ownership in the process. But then there are two other entities, Captain SBA and Captain Treasury who are commissioned to also build the “ship”.
When the money becomes available, the three captains begin building. As with any building program where there are multiple captains, consensus is fleeting. Captain Treasury says the approval process can be accomplished in one day. Captain SBA says that’s absurd and they can’t respond to the demand and it will take multiple days.
The ship was floating on the water while Captains Treasury and SBA built it. Because of the immediate need of the “ship,” the three “captains” avoided major decisions about how the loan would be forgiven or literally anything in the future, in an effort to get businesses on board.
Now in August, we all find ourselves on board a ship still being built. The government is finalizing decisions regarding major structures, such as applications. We drift offshore awaiting final guidance and direction.
No one wants your loan forgiveness application.
What’s that? You want your loan forgiven so you can get off this ship of fools?
While it is true that the SBA has released its loan forgiveness application, the dirty little secret is no one will accept your application.
If you ask your PPP lender, they will tell you they don’t want you to fill out the application for forgiveness because they can’t grant forgiveness. Even if your payroll company has a nice little report showing the requirements of the program were met, the system is not in place to allow forgiveness.
The Treasury has been providing leadership and communication to the lenders via Frequently Asked Questions (FAQs) posted online about the program. This guidance, promised weeks ago, has finally been updated as of August 4th. The FAQs provide critical information to the lending community on just how to approve and forgive an application. Detailed forgiveness guidance was not expected before President Donald Trump signed new relief legislation. (Depending on your politics), Congress was negotiating furiously to pass more relief aid before going on recess August 8th, but now that date has come and gone without another bill.
No one is ready for your application.
The old rules about forgiveness are worthless when the rules change.
A reason the FAQs had not been updated is there was speculation the forgiveness process was going to change dramatically. In my post about the forgiveness application, I noted that thousands of CPAs and attorneys would need to learn the calculation quickly to effectively assist borrowers with their applications. There were, after all, more than 4.89 million PPP loans disbursed!
A precedent was set recently when the administration publicly released the list of borrowers who have a PPP loan above $150,000. (At this website, you can search any borrower with more than $150k in PPP money.) With PPP fatigue among advisors and borrowers alike, there was a bill in congress to eliminate documentation for loans under $150k. This would be a welcome relief for borrowers and their advisors but, as of August 12th, this bill has not yet passed.
Complicating the forgiveness application, the SBA upgraded their forgiveness portal for the incoming tidal wave of expected applications. This portal opened August 11th, but lenders are not jumping at the opportunity to test it out. (The cutting edge of this new technology may be the bleeding edge!)
JP Morgan Chase, the largest PPP lender with $29.2 billion in PPP loans, is waiting until September to start processing applications. Meanwhile, you can be sure that invested parties will continue to lobby for blanket forgiveness below a threshold.
While you wait for more information, relax and enjoy the summer.
The PPP loan you borrowed in April may be here longer than the summer months. Here are two things to remember about this loan.
- It was initially only for eight weeks and the funds needed to be used by June 30th. The SBA has extended the forgiveness time period to 24 weeks. Furthermore, borrowers have 10 months after the covered period to seek forgiveness, per Kari Hipsak from the Association of International Certified Professional Accountants. You have time to let this all play out and not need to stress this loan.
- The loan is at 1% interest. Let’s remember that we’re discussing the cheapest debt you’ve ever had apart from an introductory credit card offer. Even a $200,000 loan only accrues $167 per month in interest at that rate. At that rate, the interest is not working hard against you.
Everyone in the world is dealing with extremely high stress levels.
We are now in our sixth month of major economic, social and political disruption. Our economic, political, and mental health is being put to the test. One of the seven habits of highly successful people is to focus on the circle of control, not the circle of concern.
You don’t have any control over this process. Don’t use your mental energy to worry about this.
Spend your energy now to focus on your clients and create products they need. Let them know you care about them and you are happy they purchase from you.
I promise you, whether by forgiveness or by repayment, you will eventually be able to remove this PPP loan from your accounting books.
Go enjoy the rest of the summer.