The window of opportunity to take advantage of the Paycheck Protection Program (PPP) has closed, but considerations for the program, particularly around its most appealing benefit remains.

First established in March 2020 through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the PPP helped organizations managing the repercussions of the COVID-19 disruption by providing funds to support payroll costs. The 2020 year-end Consolidated Appropriations Act extended the program into 2021 with some modifications, loans from which are sometimes referred to as the PPP2. In March,  the Small Business Administration (SBA) pushed the final application date for the PPP2 even further into the second quarter. As funds for the PPP2 dwindled in May, the SBA limited the last of the proceeds to participating community financial institutions.

A key benefit to the PPP was the fact that loans could be forgiven. As of May 31, the SBA has forgiven $279.4 billion of the $521.2 billion in 2020 PPP loans it distributed. If you haven’t heard about the status of your PPP loan, or if your organization is among the 1.7 million recipients who have not yet submitted their PPP loan forgiveness application, this refresher on the SBA’s review and approval process may be helpful.

Brief Refresher on Loan Forgiveness Requirements

PPP loan recipients should qualify for loan forgiveness if they met certain requirements during the eight to 24 weeks after the PPP loan disbursement — the Covered Period. These include maintaining employee and compensation levels and spending at least 60% of the loan on eligible expenses (namely payroll-related).

Recipients must apply for loan forgiveness within 10 months after the last day of the Covered Period end date or the loan has to be repaid in full. If not submitted by that time, applicants must begin making loan payments to the PPP lender after the one year grace period.

Those whose loans are $150,000 or less can apply for loan forgiveness using the simplified one-page SBA Form 3508S and will not be required to submit additional documentation to substantiate how the loan proceeds were spent. If your loan was more than $150,000, you will need to fill out one of two applications: the PPP EZ Loan Forgiveness Application (SBA Form 3508EZ) or the PPP Loan Forgiveness Application (SBA Form 3508), depending on factors such as employee retention.

The Likelihood of Forgiveness and the History Around PPP Loan Scrutiny

When the PPP loans were first made available last year, the initial funding ran out within two weeks. Questions arose about how the funding was depleted so quickly. Soon after, it was found that large businesses, including national chains, had been taking advantage of the initial funding that was designed for smaller businesses.

To ensure funding went to smaller businesses, the SBA and U.S. Department of Treasury announced in April 2020 that they would review PPP loans of $2 million or more to ensure that the applicants met the program qualifications. PPP borrowers with loans of $2 million or more must undergo the additional review by completing the PPP Loan Necessity Questionnaire (SBA Form 3509) along with the loan forgiveness application. This questionnaire is intended to help gather additional information and ensure that the loan was necessary in a time of economic uncertainty at the time of application.

The additional diligence on large PPP loans from the SBA has put roughly $81.5 billion in PPP loan proceeds into the review process (as of May 31). It may be also one of the reasons why loan recipients and their lenders are taking their time with the loan forgiveness application process. The number of applications not yet received by the SBA account for more than 20% of the total PPP loans distributed in 2020 (~$159.1 billion).

What to Do if Your Loan Isn’t Forgiven

About $1 billion of PPP loans have not been forgiven to date. If your organization’s loan is not forgiven, you will have to start making payments. PPP loans accrue interest at 1% and may be subject to additional accounting and tax considerations.

Accounting and tax providers are available to help you navigate the loan forgiveness process and plan for ramifications of PPP loan payments. For more information on how the PPP loan forgiveness status affects your organization, please contact a member of our COVID-19 loan and capital assistance team.

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