Should You File for PPP Loan Forgiveness Now, or Wait Until Later?

In short:

• Rules around the Paycheck Protection Program continue to evolve. We asked a legal expert to interpret the latest developments.
• Choosing whether to file for loan forgiveness now is largely a matter of the size of the loan your business received.
• Some businesses may want to collect documentation that proves the necessity of their original loan application, in case the Small Business Administration’s request to confirm said necessity is approved.

Some 5.2 million loans worth $525 billion have been issued under the Paycheck Protection Program, according to the U.S. Small Business Administration. In July, Brainyard reached out to attorney Christina Moore, a partner at Atlanta-based law firm Taylor English Duma LLP, to clear up confusion surrounding the PPP Flexibility Act and other changes to the initial program.

Moore has continued to monitor the evolving rules around the PPP, so we circled back to ask about applying for forgiveness, safe harbors and potential new requirements for companies that received loans of $2 million or more.

Brainyard: If a business is eligible to apply for PPP loan forgiveness, should it start that process now? If not, why not?

Christina Moore: PPP borrowers with loans $50,000 or under should file for forgiveness now. The SBA has simplified the forgiveness process for them. For PPP borrowers with loans over $50,000, I think a business should consider starting the process if it has:

1. Spent its PPP funds during what the SBA refers to as the Covered Period or Alternative Covered Period (8 weeks or 24 weeks); and
2. Does not have a reduction in its FTEs.

On the other hand, if a PPP borrower with a loan over $50,000 is struggling with its FTEs — i.e., has had a reduction — and anticipates rehiring prior to Dec. 31, 2020, I think those borrowers should wait to file. While there are safe harbors [provisions that grant forgiveness even if a company doesn’t meet all the criteria] in place for a reduction in FTEs, some safe harbors provide for the safe harbor only until the earlier of filing for forgiveness or Dec. 31.

Additionally, the safe harbors lack detail for those in some circumstances, and the SBA may provide clarification later as the first applications are processed. The deadline for a borrower to file for forgiveness is 10 months from the end date of the Covered Period. So, there is really no need to rush if there is still uncertainty related to FTEs and/or other aspects of forgiveness.

BY: We have heard of lenders pressuring businesses to take various steps related to PPP loans. What legal rights does a lender have vis a vis forgiveness versus repayment?

CM: I have heard lenders encouraging, not really pressuring, borrowers to file for forgiveness. A lender does not really have any legal rights to force forgiveness filing or premature repayment. The PPP borrower is not required to file for forgiveness until the expiration of 10 months after the end date of their Covered Period — most borrowers likely choose the 24-week period — which is also the timeline for deferral of loan payments.

When a company is ready to seek forgiveness, it should work directly with its payroll provider, accounting experts and legal counsel to complete the application.

BY: Are there “gotchas” that could trip them up?

CM: The safe harbors are tricky. You may not be aware you can claim a safe harbor, or you may claim a safe harbor incorrectly.

For example, the safe harbor provisions added by the PPP Flexibility Act are related to a reduction of FTEs to comply with requirements or guidance related to health and safety — but only at your business. This safe harbor is not applicable if your supply chain or clients made reductions due to their own health and safety guidance, even though the effects impact your business/revenue and your FTE needs.

Say you’re a food supplier to a restaurant group that had to make FTE reductions because of health and safety requirements. In turn, you as the supplier reduced FTEs because food demand was down. You would not be able to claim safe harbor for this reduction.

BY: If a company still needs assistance, are they still able to access any loan programs?

The EIDL Loan Program and Main Street Lending Program can still be accessed today.

BY: Do you expect any changes in the new year, either because of the election or a predicted second wave of the virus and associated new closures and restrictions?

CM: I do not necessarily expect changes. I think January will bring a focus on schools, the vaccine and funding needs of those other than small businesses. I hope there will be some clarification on things involving the PPP loan program, such as safe harbors or simplification of the forgiveness process.

BY: What haven’t we asked that small businesses should know now?

CM: On Oct. 26, the SBA issued a notice seeking approval from the Office of Management and Budget (OMB) for the collection of information from borrowers who received loans of $2 million and more.

The notice seeks approval for the use of two questionnaires, one for for-profit companies and one for nonprofits. The questionnaires require borrowers to provide information on certain certifications and to support the certification made at the time of the loan filing that current “economic uncertainty makes this loan necessary to support ongoing operations.”

This notice opens the door to documentation needed to support and back up certifications made by a borrower. If use of the questionnaire is approved, borrowers should consider engaging counsel to help prepare the questionnaire while also establishing a “file” with documentation, third-party memorandums and evidence that their certifications are supported and were made in good faith.

Even if the questionnaire’s use is not approved, borrowers may still consider engaging counsel to document, with a third-party memorandum, that their certifications are supported and were made in good faith.

About the Expert

Christina Moore is a partner at Taylor English Duma LLP. She has experience in transactions involving real estate acquisitions and dispositions, including transactions involving apartment complexes, real estate and related-asset secured loans and other complex credit facility transactions. She may be reached at cmoore@taylorenglish.com.