Paycheck Protection Program Forgiveness Applications – Should You Act Now or Wait?

Recently, the Small Business Administration (SBA) opened its portal for accepting forgiveness applications under the Paycheck Protection Program (PPP) . Over the next few weeks, banks will be preparing to start accepting forgiveness applications, although some lenders may wait due to the potential for shifting guidance.

In preparation for submitting forgiveness applications, we thought it might be good to lay out some considerations on whether you should file as soon as possible or possibly delay the application process. Below are some pros and cons of filing quickly so that you can decide what works best for your situation.

Pros (In favor of applying quickly)

• Timing. Your bank will have 60 days to process the application and render a decision on forgiveness. The SBA will then have 90 days to review and provide funding back to the bank in the amount of forgiveness.
• Additional guidance. There’s a possibility that SBA may issue additional guidance that could be unfavorable to borrowers, so applying under the current guidance might be advisable. If additional guidance is issued, it is unclear as to whether that guidance would apply to applications already filed which could result in needing to engage legal counsel to prepare for a dispute.
• Simplicity. With the extension to 24 weeks, some borrowers will be able to achieve 100% forgiveness and only use the payroll they’ve paid to achieve that level of forgiveness. If your situation is that straightforward, there may not be a reason to wait since additional guidance is not likely to impact your application.
• Fiscal year-end recording. Forgiveness can potentially be received and recorded before fiscal year-end. The AICPA issued guidance in June and the Financial Accounting Standards Board (FASB) is said to currently be addressing this issue. The current guidance is a bit unclear because current GAAP guidance doesn’t permit recording forgiveness until it is received; however, there are interpretations that would imply that, if forgiveness is virtually certain, you might be able to record forgiveness before the legal documentation is received. This area is still developing.

Cons (Against applying quickly)

• Congressional action. While Congress and The White House are at an impasse in terms of additional stimulus funding, most still believe Congress will take some action. For example, part of the recent proposals included issuing blanket forgiveness on some smaller PPP loans (perhaps up to $150,000) which would require only a borrower certification, eliminating the application process. We don’t know what will pass or when, so it might be worthwhile to wait a short while to see what develops.
• Documentation. The documentation that needs to be filed based on the size of your loan (under $150,000; $150K – $2M; over $2M) is still being determined. And while the forgiveness application may be available in your lender’s portal, the ability to include the supporting documentation may not be, which could create issues with your forgiveness amount.
• Additional guidance. There are still several unclear issues regarding qualifying expenses, full-time equivalent employee measurements, etc. It might be best to wait for SBA to issue final guidance, some of which have been delayed due to the expectations of congressional action.
• Forgivable expenses. Since the PPP Flexibility Act extended the 8-week covered period to 24 weeks, some forgivable expenses are still unclear as to whether or not they can be included. Some of those “fuzzy” expenses might be able to be replaced with payroll costs that are clear, but this would require waiting a bit longer.
• Crain’s Cleveland Business published that an alert has been issued by The Department of Homeland Security on hackers spoofing the SBA’s COVID-19 website and sending out phishing emails in an attempt to steal credentials. Waiting might allow the government time to ferret out potential risks. (Note: If you decide to move forward with your application quickly, take precautions to ensure the information you are submitting is going to your bank and not some other party. These applications will include significant private information for your employees, so extra caution is justified.)
• What’s the hurry? Borrowers have 10 months after the end of their covered period before they need to start making payments on the loan. You still have plenty of time.

Unquestionably, there are still outstanding questions that could receive additional clarification from SBA. It can be difficult to be patient when your organization is affected by the ongoing uncertainty that COVID-19 created, but patience may be the best approach until the forgiveness application process and details are ironed out.

If you would like to discuss whether you should apply now or wait longer, please contact your BMF Advisor.

Visit our COVID-19 Resource Center for information and additional resources for you and your business.