The Latest Changes to SBA PPP Loan Forgiveness and What You Need to Know

Millions of small businesses received funding from the Small Business Association (SBA) Paycheck Protection Program (PPP) which has generated even more questions regarding how and when loans will be forgiven. Here is the latest on guidance issued from the SBA.

The Treasury Department and SBA have issued guidance that forgives PPP loans that were funded for $50,000 or less. Business owners who received loans of $50,000 or less have to fill out a one-page document, just released by the SBA, and give it to their lender to process. The new rule also removes the need to show that the borrower did not reduce head count or salaries and, therefore, suffer a reduction in loan forgiveness. Previous regulations outlined that if an employer reduced salaries by over 25%, the amount over 25% would not be forgivable.

The SBA cleared up confusion regarding PPP loan forgiveness application forms (3508, 3508EZ, and 3508S) that displayed an expiration date of 10/31/2020 in the upper-right corner. According to the SBA, ‘borrowers may submit a loan forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination. However, if a borrower does not apply for loan forgiveness within 10 months after the last day of the borrower’s loan forgiveness covered period, loan payments are no longer deferred and the borrower must begin making payments on the loan. For example, a borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to apply for forgiveness before loan repayment begins. The expiration date in the upper-right corner of the posted PPP loan forgiveness application forms is displayed for purposes of SBA’s compliance with the Paperwork Reduction Act, and reflects the temporary expiration date for approved use of the forms. This date will be extended, and when approved, the same forms with the new expiration date will be posted.’

Lenders must recognize the previously established extended deferral period for payments on the principal, interest, and fees on all PPP loans, even if the executed promissory note indicates only a six-month deferral. This means that lenders must immediately comply with the extended deferral period and notify borrowers of the change. The Paycheck Protection Flexibility Act of 2020, P.L. 116-142, extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s loan forgiveness amount to the lender or (2) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. Before the Flexibility Act became law on June 5, the deferral period could end after six months. And while the Flexibility Act extended the deferral period, it did not specify whether lenders and borrowers had to modify promissory notes used for PPP loans to reflect the extended deferral period. Source: Journal of Accountancy

The SBA released procedures required for changes of ownership of an entity that has received PPP funds. The guidance clarifies requirements and may help businesses that have been trying to go through the forgiveness process quickly because of an impending transfer of ownership. According to the notice, a “change of ownership” occurs for PPP purposes when at least one of the following is true:

    • At least 20% of the common stock or other ownership interest of a PPP borrower (including a publicly traded entity) is sold or otherwise transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity;
    • The PPP borrower sells or otherwise transfers at least 50% of its assets (measured by fair market value), whether in one or more transactions; or
    • A PPP borrower is merged with or into another entity.

Note that all sales or transfers that have occurred since the date of the approval of the PPP loan must be aggregated. For publicly traded borrowers, only sales or other transfers that result in one person or entity holding or owning at least 20% of the common stock or other ownership interest of the borrower must be aggregated.

Regardless of a change in ownership, the PPP borrower remains responsible for all of the following:

  • Performance of all obligations under the PPP loan;
  • The certifications made in connection with the PPP loan application, including the certification of economic necessity;
  • Compliance with all other applicable PPP requirements;
  • Obtaining, preparing, and retaining all required PPP forms and supporting documentation; and
  • Providing the required forms and supporting documentation to the PPP lender or lender servicing the PPP loan, or to the SBA upon request.

Before closing any change-of-ownership transaction, a PPP borrower is required to notify the PPP lender in writing of the contemplated transaction and provide the PPP lender a copy of the documentation underpinning the proposed transaction. Additionally, some changes in ownership may require SBA approval, with the SBA having 60 calendar days to review and provide a determination of its approval.

The PPP lender must notify the SBA within five business days of the completion of a transaction and is required to continue submitting the monthly 1502 reports until the PPP loan is fully satisfied. Source: Journal of Accountancy

To receive PPP loan forgiveness, borrowers are responsible for submitting a loan forgiveness application and the required supporting documentation to their lender. A lender has 60 days from receipt of a completed loan forgiveness application to issue a decision to the SBA. The SBA, subject to its review, will remit funds within 90 days after the lender issues its decision to the SBA. The lender will notify the borrower of the loan forgiveness amount.

For other questions regarding PPP loan forgiveness, check out our TGG Bonfire Chat with TGG Founder & CEO Matt Garrett along with TGG President & CFO, Andrew Ruff. Click to watch now!

This post was reviewed by our team of accounting and financial experts. TGG’s mission is to make business owners’ lives better through excellent financial management. We strive to provide the most up-to-date and objective information on accounting-related topics so our readers can make informed decisions based on factual content. All posts undergo a review process with at least one member of our Leadership Team to ensure accuracy.

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