SBA updates PPP loan forgiveness process

In a further expansion of the $660 billion Paycheck Protection Program relief effort, the Small Business Administration has released new loan forgiveness forms that cut documentation requirements and appear to make debt elimination easier. 

The new Loan Forgiveness Application Form EZ is expected to help qualified borrowers who meet one of three criteria involving their roles in their businesses and how employee salaries were effected by the downturn.

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According to the New York Times, the forms added a “safe harbor” option that allows borrowers to simply affirm they were unable to operate “at the same level of business activity” they had before the crisis because of government requirements or safety guidance, including social distancing rules. Assuming the borrowers making this affirmation have met all of the program's other requirements, their loans will be fully forgiven. More than 4.6 million business owners have borrowed $513 billion from the program, the Times claimed. Demand slowed after the initial rush, supposedly because of concerns over the rules and their frequent revisions. As such, nearly $130 billion remains available for business. The program is scheduled to stop lending at the end of June.

The primary way hoteliers will qualify for maximum PPP loan forgiveness is if they did not reduce the annual salaries or hourly wages of their employees by more than 25 percent, nor reduce the number of employees or the average paid hours of those employees by more than 25 percent during the covered period or the alternative payroll covered period, explained Chris Hurn, CEO and founder of nonbank SBA lender Fountainhead.

“The new guidance looks to simplify the process for all borrowers,” ] Hurn said. “Overall, the borrower application is simpler, but the calculations have not been simplified much for borrower or lender.” Much like tax codes, Hurn acknowledged, the wording of the guidance is “relatively complicated.” 

The SBA, Hurn added, is still requiring numerous submission documentations, which will strain both borrowers and lenders in terms of submitting and processing, respectively. “While SBA/Treasury just released these new forms and instructions, lenders have not received updated guidance on these as well, but the lending community will need this very shortly in order to make these forgiveness certifications,” he said. “I would, however, expect there to be more iterations on all of this. This is PPP after all. We’re already up to 18 revisions to the ‘interim final rule’ and there have been 48 guidelines issued in the form of frequently asked questions so far.”

Earlier this month, the U.S. Senate approved the House-passed PPP reform bill in a voice vote, clearing it for presidential approval. The update gives business owners more flexibility and time to use emergency loan money and still have the debt forgiven. The measure gives employers 24 weeks to spend the loan money (up from eight weeks) and still have the loans forgiven. An earlier version of the bill would have eliminated any requirement about how much companies must spend on payroll, but the final text reduces the percentage from 75 to 60.