PPP Loan Forgiveness–Part II

The  Small Business Administration(SBA) has just published its PPP loan forgiveness process. Borrowers are required to submit a package to their lenders documenting use of the funds was done in accordance with the terms of the loans.  The lender will have 60 days to make a good faith determination this was so.  Any deficiencies in the application will need to be corrected before the package is submitted to the SBA. Assuming this is done properly, the SBA will then have 90 days to make a determination of forgiveness.  If rejected, there is an appeals process. The SBA has indicated it will review all loans in excess of $2 million for compliance and possibly for eligibility as well.  

In a previous blog I was critical of the Financial Accounting Standards Board requiring organizations to wait until the SBA formally grants forgiveness of the PPP loans before they could be removed from the borrowers’ balance sheet. Let’s look at this situation. There is a high probability the loan packages will be rejected by either the bank or the lender along the way. Corrections will be made, adding more time to the process. (You have all dealt with banks and regulators before, right?)  Optimistically, this could take a minimum of six months.   The borrower could have satisfied all of the requirements for forgiveness except not  hand-in complete paperwork. This simple action, subject to the whims of bankers and regulators, could determine the date the loan is forgiven and not the economic event of compliance. Since the SBA will not begin accepting applications until August 10, PPP liabilities will be on the balance sheet for six months minimum, clouding  readers’ analysis of the financial statements. Does this make sense to anyone?

Let’s look at some of the practical implications of this. I had complained  NFP organizations with a fiscal year-end of June 30 had no chance of having the debt removed from their balance sheet.  Now, NFP organizations with a fiscal year-end of September 30 will also be carrying the debt on their year-end balance sheets. This will probably be the case for December 31 year end organizations as well. 

In the meantime, bankers will need to give very clear instructions about what they will accept as proof of compliance to speed the process along.  Similarly, NFP management should not make the lenders or the SBA work hard to recommend or grant forgiveness.  Take the time to put together an easy to follow package with sufficient detail. Make the package easy to review.  In short, don’t scrimp on the upfront preparation.  It will only slow the process down.  You want this loan off your balance sheet as fast as you can.