Paycheck Protection Program (PPP): 5 FAQsSeptember 07, 2021
Did you receive PPP funding? Wondering when your deadline is to pay? What if you cannot make the payment on time? We have the answers to these questions and more. Read on.
As featured in Providence Business News, we caught up with Mike Garcia to hear his thoughts on five FAQs regarding the Paycheck Protection Program (PPP). Let’s dive in.
- When is the deadline for round 1 PPP recipients to pay?
Payments on unforgiven PPP loans begin 10 months after the end of a recipient’s covered period (assumed to be 24 weeks). That means first payments will be due approximately 16 months after the date a PPP recipient received their PPP loan. For example, for those borrowers who received PPP loans in May of 2020, their first payments will begin in September 2021. Provided a borrower submits their PPP loan forgiveness application before the due date of the first loan payment, the loan will stay in deferral status and payments are not required at this time.
- Can recipients that have not applied for forgiveness do so after making their first payment? What would you advise about how to approach this for accounting purposes?
Yes! Borrowers can file for forgiveness at any time, there is no deadline to apply for forgiveness and if a borrower applies for forgiveness after they have begun making payments and the loan is subsequently forgiven in full, any payments made will be refunded. However, this is not an ideal situation, and borrowers should try to apply for forgiveness prior to making any payments.
From an accounting perspective it depends on whether the borrower has elected to treat the PPP loan as a loan or a government grant. If the borrower has elected to treat the PPP loan as a loan, they would record it as they would other loan payments - breaking out the payment between principal and interest components. If the loan is being treated as a government grant and the borrower expects full forgiveness, any payments made should be recorded as a receivable. At KLR we’ve been advising our clients on the accounting options available to them so that borrowers can make an informed decision on how to account for their PPP loan.
- What percentage of PPP loan recipients in RI (or overall) have not applied for or qualified for forgiveness and thus will have to make this payment?
While we don’t have state level specific data available, as of August 15, 2021, the SBA reported that they had received loan forgiveness applications for approximately 84% of all first draw PPP loans, which represents approximately 87% of the total dollar value of all issued first draw PPP loans. Assuming that Rhode Island is in in line with the national data, we estimate there are approximately 2,900 first draw PPP loan borrowers in Rhode Island with loan balances totaling approximately $247 million dollars that have not yet filed for forgiveness!
Based on these estimates, the average unforgiven first draw PPP loan in RI would be less than $100,000. That means most of the unforgiven loans in Rhode Island qualify to apply for forgiveness using Form 3508S which requires much less time to prepare. In fact, the SBA has recently set up an online portal system where borrowers with loans $150,000 and under can apply directly for forgiveness with the SBA (and bypass the banks) to help speed up the forgiveness process.
- Is it too late for those who have not applied for forgiveness to do so ahead of the deadline?
It’s definitely not too late. As soon as the bank or SBA receives the loan forgiveness application the PPP loan goes back into deferral status. Therefore, if borrowers submit the application prior to the first payment’s due date, they will not have to make any payments until the SBA decides on the final forgiveness amount. However, borrowers should not wait until the last minute to get these applications into their bank or filed with the SBA in case of any delays in the submission process.
- If a recipient cannot make the first payment on time, what should they do?
First and foremost, borrowers should submit their loan forgiveness applications as soon as possible, preferably before the first payment due date. In many cases, it will only require a few hours to gather the necessary information from their payroll provider and fill out the application.
However, if you can’t make your first loan payment and your loan was made prior to June 5, 2020, you should contact your bank and let them know that you would like to extend the loan maturity date to 5 years. PPP loans made prior to June 5, 2020, will mature two years from the date the loan was disbursed to the borrower. Since payments have been deferred for 16 months, the remaining loan balance will be amortized over the remaining 8 months of the loan’s term.
Under the PPP Flexibility Act, all PPP loans made after June 5, 2020, are set to mature 5 years after the loan was disbursed to the borrower and any PPP loans made prior to that date are eligible to be converted from the original two-year term, to a 5-year term. By converting to a 5-year term, instead of loan repayments being over an 8-month term, they will be over a 44-month term, drastically reducing the required monthly payment amount.