Although banks have started accepting loan forgiveness applications for the federal government’s $659 billion Paycheck Protection Program, some small business owners and banks may find it advantageous to wait.
Several organizations around the country including the Wisconsin Bankers Association are lobbying to have Congress pass legislation that would provide automatic forgiveness for PPP loans of $150,000 or less.
By avoiding the complexity of the loan forgiveness process, the theory is that both the U.S. Small Business Administration and financial institutions would save a considerable amount of resources.
“Frankly, the level of complexity and paperwork that’s required to be pulled together by borrowers when they apply for forgiveness is so burdensome on that segment of business borrowers that we’d like to streamline the process for them and have this concept of automatic forgiveness,” said Rose Oswald Poels, WBA president and chief executive officer.
Under U.S. Senate Bill 4321, the “Continuing Small Business Recovery and Paycheck Protection Program Act, all PPP borrowers receiving $150,000 or less shall automatically have their loan forgiven if the debtee “signs and submits to the lender an attestation that the eligible recipient made a good faith effort to comply with the requirements under section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)).”
The proposed one-page attestation would still require business owners to certify they used PPP funds for expenses eligible for forgiveness, which include payroll, mortgage, rent and utility expenses. However, businesses would not be required to provide documentation that funds were used for eligible expenses subject to forgiveness.
“It’s a little bit on the honor system, at least that’s the way this bill was drafted,” Oswald Poels said.
Eighty-five percent of PPP borrowers nationwide received loans of $150,000 or less, but those loans only accounted for 26% of PPP funds obligated. If and when the SBA begins to audit borrowers, proponents of the bill say it would be a better use of resources to focus on that 15% of borrowers who received 74% of program funding.
“That’s where the most government money is potentially at risk for abuse,” Oswald Poels said. “It’s a risk weighted analysis.”
Whether Congress will pass the bill is still up in air. However, Oswald Poels says industry leaders are optimistic with the potential passage of the bill coming as early as September, she said.
“I think at the end of the day we will see this approval and ultimately legislation that does allow for automatic forgiveness, but it might not be until September that it comes to fruition,” Oswald Poels said.
While the loan portal opened for financial institutions on Monday, not all are ready to begin accepting applications. Several financial institutions are working on a platform that banks will use to interface with SBA loan application software, said Raymond Lampner, Sikich partner.
Lampner, who is a certified public account, has been encouraging business owners to wait to apply for forgiveness – not only because the SBA is still solidifying guidance on the process, but also because of the possibility of the proposed bill granting automatic forgiveness.
“As of right now, continue to track your expenses to make sure you get full forgiveness for when you do file the application,” Lampner said.
Under the provisions of the PPP, Business owners have 10 months to apply for forgiveness from either the eight-week period or the 24 week period that was designed for borrowers to spend PPP funds and still be eligible for loan forgiveness.
With the 10-month timeframe in mind, most Sikich clients prefer submitting a loan forgiveness application now to get the process out of the way.
“A business owner can’t write off the loan for it to be forgiven until you get approval from the bank,” Lampner said. “Once you start getting later into the year, if that approval takes so long, it could actually cause issues with getting your financial statements done at the end of the year.”
Regardless of when a business owner decides to apply for the program, Lampner says business owners should keep dialogue open with their financial institutions to stay up to date with changes and any documents required specific to the their financial institution.