Paycheck Protection Loan Forgiveness Application Timing

By Tim Moore

Many business owners and their advisors spent an exorbitant amount of time during 2020 applying for a Paycheck Protection Program (PPP) loan. The first wave of this program kept many of these businesses afloat during the pandemic. For those businesses, now is the time to jump over the next hurdle – forgiveness.

Simply put, if forgiveness is not sought or obtained, PPP loans must be repaid over a five-year term at one percent interest. The period of time to apply for forgiveness extends beyond the point at which the loan must start to be repaid, but in most cases, it is advantageous to seek forgiveness before the loan payments must begin. There may be important reasons to wait, for example, coordination of the wages used on the application versus wages to be applied to the Employee Retention Credit.

For those borrowers that have not yet applied for forgiveness for their first PPP loan, the timing is important to avoid the need to start making loan repayments. According to the latest guidance from the Small Business Administration (SBA), the borrower may apply any time on or before the maturity date of the loan. If the borrower does not want to start making payments, it must apply for the loan forgiveness within 10 months after the last day of the maximum covered period. The covered period window of time, for this purpose, begins on the day the loan is disbursed and ends on the date exactly 24 weeks later. As an example, if a borrower receives a loan disbursement on May 28th of 2020, the date 24 weeks later is November 12th, 2020 and the date 10 months after that is September 12th, 2021.

There has been some confusion, since the law changed the rules for covered periods, that the 10 month period starts to run at the end of the covered period chosen by the borrower for the determination of covered expenses (those that create eligibility for forgiveness). That is not the case. For application purposes, the 10 months begins at the end of the maximum covered period that may be chosen, not the covered period actually chosen by the borrower. That allows for more time to apply without creating risk that payments must begin.

The turnaround time for loan forgiveness is less certain. By law, the lender has 60 days from receipt of the forgiveness application to submit it to the SBA, but SBA can take much longer to respond. Recent evidence of the period from application to notification of forgiveness puts larger loans at 90 or more days. For a borrower that is sensitive to the debt on its balance sheet or, for example, is looking to sell a business that took a PPP loan, there may be compelling reasons to start the application process sooner rather than later.

While we provided some basic information on the PPP Loan Forgiveness application and timing, it is important to understand that everyone’s situation is unique. Contact a Snyder Cohn associate to see how we can help you.