More than 30% of borrowers who received Paycheck Protection Program (PPP) loans in 2020 still have not applied for forgiveness, according to the Small Business Administration (SBA). The SBA distributed approximately $521 billion in PPP loans to businesses during 2020, but as of May 24, 2021, had not received forgiveness applications related to loans totaling $159 billion of those funds.
The SBA has issued guidance explaining that borrowers may submit a loan forgiveness application any time before the maturity date of the loan, which is either two or five years from the loan’s origination, depending on the borrower’s agreement. While it may seem like you have plenty of time to seek forgiveness, there is a key point which borrowers may not be aware or ready for. And that is that loan payments are deferred only until 10 months after the last day of each borrower’s loan forgiveness covered period.
Per the PPP Loan Forgiveness Calculation Form 3508 instructions, “Covered Period: The Covered Period begins on the date the loan was originally disbursed. It ends on a date selected by the Borrower that is at least 8 weeks following the date of loan disbursement and not more than 24 weeks after the date of loan disbursement. For example, if the Borrower received their PPP loan proceeds on Monday, April 20, 2020, the first day of the Covered Period is Monday, April 20, 2020 and the final day of the Covered Period is any date selected by the Borrower between Monday, June 15, 2020 and Monday, October 5, 2020.”
Using the above example, loan repayment would begin either April 15, 2021, or August 5, 2021, depending on the covered period chosen.
For a borrower with a forgivable or partially forgivable loan, procrastinating the forgiveness application will result in costs incurred for monthly payments of interest and principal, as well as put the borrower in the more stressful financial position of having to recover forgivable loan payments from the government. The impact on cash flow for a business already struggling can lead to dire consequences such as SBA loan default or business failure.
If you are among the 30% who have not yet sought forgiveness, we recommend that you immediately seek partial or full forgiveness of your PPP loan. For more information, contact Marks Paneth to engage a professional who can assist in the process.
Marks Paneth will continue to monitor developments and will provide updates as they become available. Contact your Marks Paneth advisor if you need additional information or assistance or email email@example.com.
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