• Keith Fulfer

Worried about your PPP Loan forgiveness? You may not need to be!

I am not one to plagiarize so the following is an article by Sougata Mukherjee  – Editor-in-Chief, Triangle Business Journal. You can follow this link to the original posting.


But this site requires an logon in, so here is the text of the article. Many people are worried by all of the changes and rules for the forgiveness of the PPP loan. The article states that you will only be held to the standard that existed when you originally applied for your loan. Many of the changes have occurred over the past few weeks. As usual, you will want to talk to your banker and perhaps your tax advisor about these points.

Late last week, the U.S. Small Business Administration added additional guidance for some 4.5 million businesses who applied for and received Paycheck Protection Program loans that, in theory, could be turned into grants if specific conditions are met. By now, almost every business in America knows the $660 billion loan program designed for small businesses to pay the workers during the Covid-19 pandemic was greeted with immense enthusiasm at first. But as details of the program started emerging, the mood shifted with fear, confusion and sometimes anger taking center stage for borrowers. "The addition of these interim final rules by the SBA and the Treasury have muddied the water enough to make businesses wonder if they made the right decision," said John Coleman, a Duke University professor of macroeconomics. "And that's why you see the excitement dwindle." The PPP program disbursement went out in two traunches – $349 billion and $310 billion. The $349 billion pot vanished in less than two weeks. The $310 billion pot is in Week Five and there is more than $100 billion left to disburse. Many large and community banks that have assisted hundreds of thousands of small businesses with the PPP money have opened up their portals for new applications. In a development on May 28, federal agencies said they would set aside $10 billion of the remaining funds for community lenders that target underserved borrowers. Businesses that already have received and are in the process of spending the PPP money need to read SBA's guidance carefully to conclude that not all the forgiveness rules are meant for them. Perhaps the most important addition in the SBA's May 22 guidance came in the form of one paragraph tucked deep in the notification: RECOMMENDED BANKING & FINANCIAL SERVICES Overwhelmed by PPP? Here's the expert advice you need GOVERNMENT & REGULATIONS Fischer sets curfew, requests National Guard to quell destruction (PHOTOS) GOVERNMENT & REGULATIONS Portland Business Journal parent company joins lawsuit seeking PPP data

The Administrator has determined that to be an eligible recipient that is entitled to forgiveness under section 1106(b), the borrower must be an "eligible recipient" under 15 U.S.C. § 636(a)(36)(A)(iv) and rules and guidance available at the time of the borrower’s loan application. Why is this important? It's because the guidance notes businesses need only to worry about the available rules when they filed the application – not all the additional clarity and requirements filed after the filing of the loan application. So, for example, if the business got an approval based on its eligibility as of April 9 – it acted in good faith to restore the integrity of the PPP. All the additional guidance from the SBA released after April 9 may not apply to that business, especially if certain elements of the guidance would have made the business ineligible to secure a PPP loan. "You can only be judged by the standard that existed at the time you made the relevant decision," said David Caputo, a former federal prosecutor with the U.S. Attorney's office in Philadelphia. "In other words, the language could really separate the potential exposure of companies that may be subject to forgiveness rules and False Claims Act liability issues." While businesses are generally aware of the loan forgiveness rules, the calculation of expenses and the documentation to prove that the expenses actually incurred during the eight-week period (or 56 days) is what may be bringing in a new player likely to act as the arbiter: the lenders. On May 22, the SBA and the U.S. Department of the Treasury made it clear that if the agency conducts a loan review and determines the borrower was ineligible for a PPP loan, the lender is not eligible for a processing fee. Banks and lending agencies are expected to net tens of billions of dollars through these PPP loan fees, and if those fees don't come through, that affects the bottom lines of financial institutions. What may be more concerning is that the lender-processing fees are now subject to clawback. "If a lender fails to satisfy the requirements applicable to lenders that are set forth in section III.3.b of the First Interim Final Rule or the document collection and retention requirements described in the lender application form (SBA Form 2484), SBA will seek repayment of the lender processing fee from the lender and may determine that the loan is not eligible for a guaranty," reads SBA's guidance. And the lender will be left holding the loan on its books at 1 percent interest. "This will make lenders more vigilant in the back-end than they were in the front-end when PPP applications were flying through the systems of lending institutions, said Harry Davis, a professor of finance at Appalachian State University. "Those fees are going to make a big difference in income statements of many community banks." For some of the PPP borrowers who received approval and money during the initial days of the program launch, the eight-week period is about to be over in the next few days. The talk across all quarters in Washington, D.C., now revolves around whether Congress will change some of the rules of PPP to address concerns laid out by small businesses. "Congress and the administration want to make changes in the current law to assist expanding the eight-week period and percentage of expenses that go specifically to payroll in the HEROES bill, which seems likely," said Julio Gonzalez, CEO of Florida-based Engineered Tax Services who advised the Trump administration in 2017 with the Tax Cuts and Jobs Act. "It (will) take the House, Senate and the administration to all come to an agreement. Certainly likely, but not definite." On May 28, the U.S. House of Representatives passed a bill that extends the eight-week loan forgiveness period to 24 weeks and allows employers to rehire workers after June 30 and still receive loan forgiveness. The bill also reduces the provision that 75 percent of loans be spent on payroll to 60 percent. If Congress and the White House agree to the provisions and make the changes, it likely would appease millions of small businesses, but it may also lead to a harder stance by the SBA and Treasury when reviewing all loan applications (not only loans more than $2 million) for fraud, misrepresentation and miscalculations. "The Department of Justice is not playing a 'gotcha' game," Caputo argues. "The Department of Justice will be looking for egregious fraud and it is likely that the percentage will still be low at the end of the day. But make no mistake that because there's so many dollars involved, there will still be a fair amount of fraud."

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