Answering Your PPP Loan Forgiveness Questions

Dan Brogdon, a former Horizon loan officer who now serves as a lender development coach, addresses many common questions we’ve received about the Small Business Administration’s Paycheck Protection Program (PPP) and the loan forgiveness process.

The PPP Flexibility Act was signed into law on June 5, 2020 and offered a number of changes to the SBA PPP program. One key change was expanding the covered period from eight weeks to 24 weeks. Could you help our listeners understand the advantage of the 24-week covered period, and if there are instances when borrowers could still use the eight-week covered period. 
If the borrower had their PPP loan in place prior to June 5, choosing between an eight-week covered period or a 24-week covered period is the borrower’s choice, and they should select the one that best fits their individual situation.

Some of the advantages to choosing the 24-week options include:

• It allows more time to use the funds towards eligible payroll and non-payroll expense. This is especially helpful for restaurants or businesses that we shut down for an extended period of time by government order.
• The documentation is simplified. Most borrowers can use payroll to achieve 100% loan forgiveness. This eliminates the need to submit documentation for non-payroll expenses.   
• The first payment will not be due until 16 months from loan origination. There's plenty of time to apply and if you receive 100% forgiveness, you will owe no interest. With the new program terms, Horizon will extend deferred payment for loans originated prior to June 5.     

The PPP loan was based on 10 weeks of the borrower’s payroll. Borrowers now have 24 weeks to use up 10 weeks of payroll, which should be easy to do. Using payroll for all of the forgiveness avoids using eligible, yet somewhat gray area, non-payroll items such as: inter-company rent or loan/utility/lease agreements that are in the owners (not the business) name, to name a few.     

There are instances where the borrower may prefer the eight-week covered period. They may choose this if they don’t want the loan on their books and want to get it forgiven as soon as possible. Many borrowers had prepared for an eight-week period so they might not want to wait. Rest assured that how fast you apply has no impact on the amount that will be forgiven. The funding is already in place for PPP loan forgiveness, so there’s not a rush.

One thing that’s important to remember is that any PPP loans originated after June 5 automatically have a covered period of 24 weeks.

Another change introduced in the PPP Flexibility Act was the option for the EZ PPP Loan Forgiveness Application. Could you share about the EZ application and what borrowers may be eligible to use this form?
The EZ Loan Forgiveness is a shortened application where the borrower can do fewer calculations and provide less documentation. It still gives the option for an eight-week or 24-week covered period, so it doesn’t matter for the length of your covered period.

There are three different situations where borrowers may use the EZ application: 

• Sole proprietors or partnerships with no employees
• Businesses who did not reduce FTEs (Full Time Equivalents) or pay rates 
• Businesses who were shut down due to government order

If you fit that criteria, we’re encouraging borrowers to use the EZ application because it a simpler process.

Another common question we get from borrowers is when they should apply for loan forgiveness. What’s your recommendation? 
In general, we recommend waiting about one month after the borrower’s covered period ends to apply for loan forgiveness. Under PPPFA, the borrower actually has up to 10 months after the covered period to apply, so there’s plenty of time. As I mentioned before, you will get the same amount of forgiveness whether you apply one month after your covered period or 10 months after. Of course we encourage you not to wait until the very end.

You might be asking if you can apply before the covered period ends. Yes, there are instances when you could apply before the end of the covered period, but you should fit one of these two categories:

• Sole proprietors and partnerships with no employees who choose the 24-week covered period. Their forgiveness has been pre-determined based on 2019’s net self-employment income.   
• The borrower used up the PPP funds and is satisfied they have achieved maximum loan forgiveness and are certain that they have not/will not reduce FTE’s or any individual employees pay rate.

Are there any other thoughts you'd like to share with our listeners today?
The PPP program has helped many businesses during this time, but it has been a challenge for all of us to keep up with all of the program changes. Forbes magazine compared it to a roller coaster ride at Disney World. As new information is released, we’re doing our best to review the details and share that information with you.