This is the 21st edition of my New Regular series, which is devoted to helping your business survive and thrive to the other side of the weirdest year in the experience of any living person. Normal “put a lid” on itself around the end of March and hasn’t surfaced since.
Earlier this year, to capture what small businesses were going through in 2020, I coined the Three U’s of the Apocalypse: an Unprecedented coronavirus pandemic, precipitating an Unprecedented economic shutdown, necessitating Unprecedented direct government assistance. What follows is a report on changes to the terms of that assistance.
As the CARES Act was signed into law by President Trump on March 27, I posted a preview of the most likely way your business would be impacted by it. A few months later, I updated that information with the new terms of the Paycheck Protection Program (PPP).
So, it’s now time to update that update, with new PPP forgiveness and repayment rules. We’ll span from the old rules to the new, including what you’re expected to do and when you’re expected to do it. My purpose here is to make you better informed when talking with your banker and financial advisor to wrap up these transactions. But first, 60-seconds of history.
Since the end of March, Congress appropriated $659 billion for the PPP, which was executed by thousands of banks. The result was 4.9 million much-needed small business loans totaling over $521 billion. The average loan was $113,000, but almost 80% were less than $100,000, and eight-of-ten of those were under $50,000. That was the equivalent of 29 years of SBA loans. Unprecedented.
Explicit in the name, PPP funds helped small employers make payroll during the government shutdown/stay home firewall imposed between businesses and customers. The sprinkles on this cupcake is that if the small business borrower meets certain requirements, the loan can convert into a grant – fully forgiven. Since March, the rules have changed several times in your favor. More sprinkles.
If you didn’t get a PPP loan, that window closed on August 8 with $130 billion unclaimed. In a recent online poll, we asked small business owners if they needed another round. Less than half, four-of-ten, said they did. Negotiations in Washington continue for another round of PPP ($130 billion is still there), plus more term adjustments, deductibility changes, and targeted help for certain industries.
The Economic Injury Disaster Loan program (different from PPP) is still available. For EIDL info, search for “SBA Disaster Loan.”
More Flexibility and Time
By June 1, the original CARES Act rules had made the acquaintance of reality, as the government learned its PPP strictures were unreasonable in the real world of operating a small business during a pandemic. Consequently, the original parameters were adjusted.
- The initial requirement of spending 75% of PPP funds for payroll and 25% for other expenses were adjusted to 60% and 40% respectively.
- The window to spend these funds expanded from 8 weeks to 24.
- Unless forgiven, the PPP loan amortization now begins 10 months (this is new) after the initial 24-weeks – essentially 16 months after the date on your loan document.
- Also new is an option to ask your banker for a payback period of up to five years for unforgiven funds. The interest rate is still 1%.
Forgiveness Breaking News
The PPP forgiveness intention hasn’t changed, but the process has.
- Your forgiveness grace period is now that same 16 months as described above.
- Lenders have 60 days to review your forgiveness documents and the SBA has 90 days. The forgiveness system is now working – PPP loans are being forgiven and the SBA is repaying banks.
Three New Forms
The first PPP forgiveness form – 11 pages of grueling homework for you, or candy for your CPA – was replaced with two newer forms in June, and just now a brand new one. Find all forms on your bank’s website or sba.gov.
- The 3508 EZ Loan Forgiveness Application Form (replacing the homework) is less than three pages (thus the “EZ”). Even I can complete it (I won’t – I have people.) This one is for PPP borrowers who DID NOT reduce employee compensation or hours during the 24 weeks.
- Form 3508 (non-EZ), is for those who DID change those two payroll parameters. This one is only a five-page snack for your CPA.
- Form 3508-S is the new kid on the block. At barely one and a half pages, it’s for businesses seeking PPP forgiveness for amounts less than $50,000, which covers most PPP loans.
An EIDL Grant Reminder
Your ultimate forgiveness number will not exceed your PPP loan amount. So, if you received an EIDL grant (not the loan) based on $1,000 per employee, and your PPP loan is fully forgiven, you’ll have to pay back the EIDL advance.
Don’t Get Excited
Don’t twist your tidies because you haven’t yet submitted forgiveness documents. Even the gray-tie bankers I’ve talked to see no hurry in processing forgiveness documents. Besides the extra time, there are technical reasons to hit the forgiveness pause button.
According to the NFIB, discussions and lobbying on the PPP continues in Washington, to include another round of funding, a more liberal forgiveness process, and possible deductibility of forgiven expenses. So, patience, grasshopper. And enjoy the sprinkles.
Write this on a rock … Take your PPP forgiveness filing cues from your banker – they want your loan to be forgiven as much as you. But remember – delivering forgiveness documents to the bank in time is still your responsibility.