By the Shone Wealth Management Team
Before we dive into this week’s blog post, we wanted to check in and share that we have been thinking of you all. It has been a rough couple of weeks for our country, and we are sending our support to everyone on the front lines protesting for social justice. These are tough times that we will only get through by helping and caring for each other. We stand with you and hope that today’s blog can serve as welcome respite during this difficult period.
Since the March 27 passage of the Paycheck Protection Program (PPP) as part of the massive CARES Act, the Small Business Administration (SBA), which administers the program, has approved some 4 million loans totaling $511 billion through May 23. At that time, according to an article released by the AICPA, about $138 billion remained available for additional lending to small businesses.
As with any government program that rolls out as quickly as the PPP, applicants reported numerous glitches and uncertainties while navigating the application process through their approved business lenders. Additionally, many questions surrounded certain aspects of the loan forgiveness provision, one of the principal attractions of the PPP. In its original form, the program offered forgiveness of the loan as long as at least 75% of the proceeds were used for payroll purposes (including certain employee benefit programs). But many small businesses and industry groups advocated for greater clarity in how the provisions of the loans would be interpreted and enforced. They also wanted to see some changes in the terms of the program.
In response, the bipartisan Paycheck Protection Program Flexibility Act (PPPFA) of 2020 was passed by both houses of Congress and signed by President Trump on June 5. Reacting to advocacy by industry groups, the bill makes some significant changes to the existing PPP, including:
These changes have been generally welcomed by industry observers. However, uncertainties still remain. In a June 8 interview with ThinkAdvisor, attorney Veena Murthy indicated that the SBA should clarify whether, in addition to retaining the eight-week period for expending loan funds, employers can also retain the eight-week period for completing the rehiring process. “If the point of the law was ‘flexibility,’” she says, “then keeping the eight-week period should mean the borrower can also keep other aspects related to that period on which they’ve been making decisions all along.”
Additionally, questions have arisen about certain enforcement policies that will be used by the SBA. On June 1, the SBA released a statement in the Federal Register stipulating that loans of any size may be audited at the SBA’s discretion. If the documentation reveals that the recipient may not be eligible for the program, for the loan amount granted, or for the amount of loan forgiveness applied for, the SBA can direct the lender to refuse the application for loan forgiveness. It is likely that this wording is intended to signal that the SBA will be on the alert for possible fraud and that borrowers with good documentation who made an innocent mistake in their application will receive the benefit of the doubt. But this still points to the importance of applicants maintaining complete documentation for both the application and the communications around it.
We’ll be sure to update you with additional information that may be released regarding PPP changes, and how they may affect business owners specifically. In the meantime, please don’t hesitate to reach out to us with any questions or concerns you may have.