Image via flickr user Jernej Furman

At the end of March, the president signed the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which included statutory language for the Paycheck Protection Program (PPP).

By the middle of April, PPP ran out of funding and a second set of PPP was approved at the very end of April.

According to the Small Business Administration, which administered the PPP loans, the program supported over 1.6 million business and protected over 30 million jobs.

The loans did help local businesses to navigate through economic and social disruption brought about by the novel coronavirus, but businesses aren’t out of troubled waters yet.

Borrowers had to make sure they used their loans in compliance with certain guidelines to make sure they are fully forgiven, and six months since the first loans were fully distributed, forgiveness is heading to the forefront for business owners.

An important note for borrower’s who may be confused about an Oct. 31 deadline in the program’s loan forgiveness application: the date is not the deadline for borrowers to apply for forgiveness, according to SBA’s Frequently Asked Questions (FAQs) page.

 Also, the SBA reminds borrowers that their loan payments are deferred only until 10 months after the last day of each borrower’s loan forgiveness covered period.

From an example from the SBA’s FAQs: “A borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to apply for forgiveness before loan repayment begins.”

For business owners who borrowed $50,000 or less, the forgiveness process became a lot easier. 

Just last week, the SBA issued new guidance that entirely forgives the debt for borrowers who took $50,000 or less in PPP loans, provided they file the right paper work. These borrowers will be able to fill out a simplified, one-page form and ignore some calculations other borrowers are required to fulfill.

“Your true small businesses, the mom and pops that really don’t need to be bothered with laborious paperwork — the rule change should help make the forgiveness process much simpler for people, including us as a bank,” said Steve Miller, president and CEO of Fresno First Bank.

 

Local lending

Miller said the PPP program was successful in getting the funding out to local businesses in a short period of time.

Fresno First Bank distributed about 650 loans worth approximately $185 million dollars, with the average loan size being about $100,000.

Miller said that in the initial stages of the Covid-19 pandemic, nobody knew how long it would last, with the federal government dispersing loans thinking the pandemic would be over in two months.

Borrowers should be aware of all the details regarding forgiveness, but he admits the guidance hasn’t always been clear to understand.

“The forgiveness process has been about as confusing as the application process,” Miller said. “There are a lot of things you have to consider when you apply for forgiveness. Not just if you qualify, but then what does it do to your business? There are tax implications — a whole lot of questions that a business owner has to think through. With an election coming up, if there is a change in administration, and taxes change—you’ve got to think through all that.”

Miller said that about 20% of the bank’s applicants have applied for forgiveness so far.

One of the bigger concerns for borrowers, Miller said, is how long the SBA takes to make their decision on forgiveness after they’ve taken the time and effort to make sure “all their ducks are in row.”

 

What does the CPA say?

Frank Hambalek, partner at Wiebe Hinton Hambalek, LLP, an accounting firm in Fresno, said there was a mad rush of clients right after the PPP program was announced, trying to see if they would be eligible.

Hambalek said that out of the firm’s clients, farmers faced a lot of issues during the application process because they use labor contractors — with those payments to labor contractors not being eligible.

Hambalek said that all of their clients have used their loans by now, and anticipates that the SBA will grant most of the firm’s client requests for forgiveness.

There are a few things Hambalek said borrowers should be aware of.

Firstly, for any businesses that are still feeling the economic impact of the pandemic, that the SBA is still offering the Economic Injury Disaster Loan Program, which is still providing low cost loans to borrowers.

Hambalek also warns borrowers to listen closely to whatever happens in Congress to see what legislation could help them. Borrowers should really make sure that all their documentation is correct to provide banks with the documentation necessary to be considered for full forgiveness.

“I’ve been asked under certain circumstances, ‘do I need to include this or that,’” Hambalek said. “My policy has been that the more you include, the better it is to substantiate what you did spend the money on. So yes include it all.”