Data as of April 1, 2021 reported by the SBA shows that only 40% of the $521.2 billion in PPP loans has been forgiven to-date. While the national average reported by the SBA shows that only 46% of total 5.2 million in PPP loans have been forgiven, ARB has been successful in obtaining forgiveness for 65% of our 2020 PPP clients. The SBA has approved forgiveness for over 400 ARB clients totaling $64,840,572!
While many clients have successfully obtained loan forgiveness, others have waited to apply until the SBA began accepting the new forgiveness applications, which included additional covered expenses, and a new streamlined application for loans of up to $150,000, in accordance with the Paycheck Protection Program-Loan Forgiveness Requirements and Loan Review Procedures as amended by the Economic Aid Act of 2021. The new applications became available within the Bank’s secure online portal at the end of March, so now is the time to apply if you haven’t already!
A borrower can apply for forgiveness once all loan proceeds for which the borrower is requesting forgiveness have been used. Borrowers can apply for forgiveness any time up to the maturity date of the loan. If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender.
That said, clients who have not yet applied for forgiveness may already be receiving bills to begin making payments on their loans under original SBA guidance when the deferral period was only 6 months after the last day of the covered period. The Paycheck Protection Flexibility Act of 2020 passed in June 2020 extended the deferral period for loan payments to either:
(1) the date that SBA remits the borrower’s loan forgiveness amount to the lender, or
(2) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period at which point the borrower must begin making payments of interest and principal.
Fortunately, an Interim Final Rule issued in October 2020, the Paycheck Protection Program as amended by American Rescue Plan Act of 2021, and corresponding FAQ from the SBA allowed for the 10-month deferral period regardless of whether or not the borrower had negotiated new payment terms with their lender. Specifically, the FAQs (updated October 7, 2020) now include FAQ #52 to provide that an extension of a deferral period (from six months to 10 months) automatically applies to PPP loan payments of principal, interest, and fees. Modification of the promissory note was not required.
Since the bulk of ARB’s PPP loans were approved by the SBA in April 2020, we have now reached the end of the revised 10-month deferral period for our borrowers who selected an 8-week covered period. Those who selected a 24-week covered period will be receiving bills in July/August. Clients receiving bills will need to begin making payments on the loan until the loan has been forgiven by the SBA. If the loan is fully forgiven, SBA forwards the principal and outstanding interest on the initial loan balance to the Bank. If the Borrower has been making payments, the current balance on the loan would be lower than the original balance, and that overage will be returned to the Borrower.
Any loans that are not fully forgiven will likely be due to errors in the original loan application, such as including contractors in payroll expenses or other miscalculations in determining payroll costs, as per guidance from the SBA on hold codes placed on First Draw loans. If do find yourself with an outstanding balance after applying for forgiveness, you have the option of terming out the loan over 5 years (instead of the original 2-year repayment term) to help make your payments more affordable.
Our SBA team is currently focusing their efforts on forgiveness for borrowers who have completed their forgiveness applications AND who have loans that are at the end of their deferment period under the original terms of the loan agreement. Note that even under the new IFR, the end of the deferral period is fast approaching for the majority of PPP clients, and by September 2021, most clients who have not applied for forgiveness will have to begin making payments.
As always, we’re here to help! You can visit our PPP loan page for help, or contact our forgiveness team at [email protected] to schedule an appointment to review any questions you might have. Thanks for reading, and stay well!
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