October 15, 2020
It appears the Paycheck Protection Program (PPP) is back in the spotlight as the Small Business Administration (SBA) continues to issue guidance and updates on loan forgiveness. The shift breaks months of silence about forgiveness, the application process, and when borrowers should start applying. Many Atlanta businesses have been in a holding pattern on forgiveness because it was expected more changes would come. The SBA has certainly delivered on this as there have been several updates including the introduction of a new “simpler” loan forgiveness application (SBA Form 3508S). In addition, there have been updates about forgiveness approvals, extended deferral periods, and guidance on when forgiveness applications are due. There was also information released about how PPP loans should be treated in M&A transactions. To help clients, prospects, and others, Wilson Lewis has provided a summary of key points below.
Loan Forgiveness Begins
For the Atlanta and Georgia business owners that have already submitted a loan forgiveness application, the wait is over since the SBA has started issuing approvals. The announcement was made on October 2, 2020, by SBA administrator Jovita Carranza that applications have been approved and forgiveness payments issued. It is important to note when a forgiveness application is approved, the amount is forwarded directly to the lender and not the borrower.
Forgiveness Application Due Date
There has been significant confusion among borrowers about when loan forgiveness applications are due. On all loan forgiveness applications, the date October 31, 2020, appears in the upper right-hand corner. This created concern about whether the applications had to be submitted by the end of the month.
On October 13, 2020, the SBA resolved the confusion in an update to the PPP Loan Forgiveness FAQ. It states that October 31st is not the submission deadline. Borrowers are permitted to submit a loan forgiveness application any time prior to the maturity date of the loan, which is either two or five years from loan origination. It was also stated that if a borrower does not apply for forgiveness within 10 months after the day of the forgiveness covered period, then loan payments are no longer deferred.
Automatic Extension of Deferral Period
Under changes made by the Paycheck Protection Program Flexibility Act of 2020, there was an extension of the deferral period from 6 to 10 months. Some were concerned about whether changes to the promissory note were necessary. The PPP list of FAQs (#52) addresses this issue and clarifies that although lenders are immediately required to provide the extended time, no changes to the promissory note are required.
Change of Ownership Requirements
In times of change comes opportunity and this has resulted in a renewed interest in the purchase and sale of businesses and business assets. However, a key question that has puzzled many is how changes in ownership impact PPP loans. The SBA issued a Procedural Notice which provides important guidance including the definition of change of ownership for PPP purposes and situations in which approval can be granted by the lender and when SBA approval is required. The guidance focuses on the percentage of assets sold and the ability to set up an escrow account to be controlled by the PPP lender.
There was also guidance issued on the borrower’s responsibilities. Prior to the execution of any transaction, the borrower is required to notify the lender in writing about the transaction and provide copies of relevant documentation. The lender is responsible to submit details to the SBA within five business days of transaction completion. Regardless of the change, the borrower is responsible for the continued performance of loan obligations, certifications made in the application (including economic necessity), and continued compliance with loan requirements.
Contact Us
It appears the SBA is now focused on expediting the loan forgiveness process and ensuring borrowers have pertinent details. As more Atlanta businesses approach loan forgiveness, it is important to consult with a qualified advisor to guide you through the process. If you have questions about the information outlined above or need assistance with a PPP, accounting or tax issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.