FAQ – PPP Loan Forgiveness

1. What is the PPP Loan Forgiveness Program?

Loans provided under the Paycheck Protection Program (PPP) are eligible to be forgiven as per the mandate of the CARES Act. Small & mid-sized business (SMB) borrowers have to meet the specific guidelines set by the Small Business Administration (SBA) and provide supporting documents to their financial institutions. Nearly 4.8 million SMB borrowers in the US can seek forgiveness for their loans for which they are entitled.

2. What type of costs are eligible for PPP loan forgiveness?

Loan forgiveness can be applied to payroll costs, mortgage interest, rent and utility costs. However, they should be over the eight weeks after the loan is made, provided the employee headcount and pay levels are maintained.

3. Do I have to qualify as a small business concern as defined in the Small Business Act to participate in the PPP loans?

No. Businesses do not have to qualify as a ‘small business concern’ as defined under Section 3 of the Small Business Act, 15 U.S.C. 632 for them to participate in this program. You may be eligible if you have 500 or fewer employees whose principal place of residence is in the US or if the business meets the SBA’s employee-based size standards for the industry in which you operate. PPP Loans are also available for qualified 501(c)(3) non-profit organizations, tax-exempt veterans organizations, tribal business concerns, etc.Check – www.sba.gov/size

4. Do businesses owned by large companies with adequate sources of liquidity to support their ongoing operations qualify for a PPP loan?

Yes they are eligible. However, like all borrowers, they must certify in good faith that their PPP loan request is necessary to support ongoing operations of the borrower.

5. Do PPP loans cover paid sick leave?

Yes. PPP forgiveness loans cover payroll costs, employee vacation, parental, family and medical leaves. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under Sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

6. What if an SMB borrower contracts a third party payer such as a Professional Employer Organization (PEO) to process payroll and report payroll taxes?

Yes they can, but they are subject to certain conditions. Borrowers who use PEOs or other payroll providers are required to report wages and other data on the Employer Identification Number (EIN) of the PEO. Payroll documentation provided by the payroll provider that indicates the wages and payroll taxes reported to the IRS will be acceptable for the PPP loan payroll documentation. Schedule R of the Allocation Schedule for Aggregate Form 941 Filers, attached to the payroll provider’s Form 941, or the Employer’s Quarterly Federal Tax Return should be used if it is available. Borrowers should obtain a statement from their payroll provider documenting the total amount of wages and payroll taxes.

7. Does the PPP lender need to confirm if a borrower has any affiliates whose employees must be included in the borrower’s count of employees?

No. The lender is not required to confirm whether a borrower has any affiliates whose employees need to be included in the borrowers’ count of employees. This is something that the borrower is expected to determine and certify as accurate.

8.Can lenders use their online portals to collect the necessary information and documents?

Yes. Lenders are welcome to collect applications and documentation through their websites to help make the process smoother. However, they are required to submit the collected data to SBA on the SBA.gov portal and collect an e-tran number.

9. Do lenders need to make any changes to their loan applications that were already filed before the updated guidance was released recently?

No. Lenders may depend upon the previous rules if the applications have been processed already. However, one can update the applications if they have not been processed yet.

10. If a lender is working with an existing SMB customer, are they required to collect and certify information they already have?

No. Lenders are not required to reverify the information of their existing customers when they apply for a PPP loan, since they would have been previously verified for other non-PPP purposes.

11. Do lenders need a separate SBA Authorization document to issue PPP loans?

No. A separate authorization is not required. However, lenders must have executed the SBA Form 2484 to issue PPP loans and received a loan number for each originated PPP loan. Lenders may include any terms and conditions in their promissory notes for PPP loans, which can include amortization and disclosures as well.

12. Can a lender sell a PPP loan in the secondary market?

A PPP loan can be sold into the secondary market at any time after the loan is fully disbursed and this sale does not require any SBA approval. While this is not addressed in the CARES Act, the SBA’s existing regulations impose limitations on the ability of Section 7(a) loans to be transferred in the secondary market. Existing SBA Section 7(a) regulations require prior notice for participation transactions up to 90%, and prior consent for participation above 90%. Participations can be made only to other SBA lenders. The SBA statistically has required a formal multi-party agreement for participation above 90%.

13. What happens to the portion of the PPP Loan that is not forgiven?

A PPP loan not forgiven is not the same as defaulting on your loan. Remember, defaulting on a loan damage your credit report and make it difficult for you to obtain more financing in the future—especially government-backed funding. For any loan amounts unforgiven, the original loan terms – two-year maximum loan at 1% interest rate with payments deferred until the date on which the amount of forgiveness is remitted to the lender — will apply.

14. Can lenders rely on the authenticity of their borrower’s loan forgiveness documentation?

Yes. lenders need not conduct any verification on the borrower’s documentation submitted for supporting the loan forgiveness request. However, borrowers need to pay special attention to the following section in their application: “I further certify that the information provided in this application and all the supporting documents is true and accurate in all respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law.”

15.Do lenders have to use a promissory note provided by SBA?

No, they may use their own promissory note.

16. Can AI help in faster processing of applications under the PPP Loan Forgiveness Program?

Yes. A simple AI-based software solution can automate the entire procedure of processing the loan forgiveness applications right from the digital application, necessary document collection, automated digitization and extraction of data, reconciliation, and back-office verification, while adhering to audit and compliance requirements. Furthermore, the software’s workflow and case management capabilities can help in handling borrowers’ appeals and SBA’s loan review process in a simplified manner.

17. Do lenders have to independently ascertain if affiliation rules are applicable to borrowers?

No. The lender is not required to confirm which entities of a borrower (if any) are its affiliates and determine the employee headcount of the borrower and its affiliates. Lenders can rely on borrowers’ certifications.

18. Who are authorized to sign on the Borrower Application Form on behalf of the borrower?

Only an authorized company representative may sign on behalf of the business seeking a loan. The signature of the “Authorized Representative of Applicant” is a representation to the US government that the signer is authorized to make certifications as indicated in the Borrower Application Form. Lenders may rely on borrower’s representation and accept an individual’s signature.

19. Do lenders need a separate SBA Authorization document to issue PPP loans?

No. there is no need to seek for a separate SBA Authorization to guarantee a PPP loan, since lenders would have already utilized the SBA Form 2484 (the PPP Lender Application Form) to receive a loan number for each originated PPP loan. Lenders may include in their promissory notes for PPP loans any conditions, including those terms on amortization and disclosure.

20. Do lenders have to use a promissory note provided by SBA?

No, it is not mandatory. Lenders are permitted to use their own promissory note or an SBA form of promissory note.

21. When is a lender permitted to submit a PPP loan application to SBA through E-Tran?

A lender must fulfill its responsibility to review all the required borrower documentation and the calculation of payroll costs before submitting the final application through E-Tran. The lender must collect all the information and certifications contained in the Borrower Application Form and fulfill its obligations as set forth in paragraphs 3.b.(i)-(iii) of the PPP Interim Final Rule.

22. Is there a need for borrowers to visit the lender’s branch to submit signed copies of loan forgiveness applications?

No. There is no need to visit any office since lenders are permitted to accept scanned copies of signed loan forgiveness applications and documents containing the information and certifications as required by SBA forms 3508, 3508EZ, etc. This prevents the need for any in-person meetings between borrowers and lenders.

23. Can lenders use scanned copies of documents or E-signatures as permitted by the E-sign Act?

Yes. All PPP lenders are allowed to accept scanned copies of signed loan applications, certifying documents and the promissory note used for the PPP loan. Similarly, they can accept any form of E-consent or E-signature that complies with the requirements of the Electronic Signatures in Global & National Commerce Act. However, lenders should take appropriate steps to ensure the proper party has executed the document when obtaining a wet ink signature without direct contact.

24. Are agricultural producers, farmers, and ranchers eligible for PPP loans?

Yes. Farmers, ranchers and other agricultural producers are eligible for PPP loans under certain conditions. The farming business must have 500 or fewer employees, or the business revenue should not exceed $1 million in annual receipts. Additionally, they can qualify for PPP loans as a small business concern if their business meets SBA’s “alternative size standard”. Check www.sba.gov/size

25. By when can a borrower apply for Loan Forgiveness?

SBA explains 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. But the SBA also reminds borrowers that loan payments are deferred only until 10 months after the last day of each borrower’s loan forgiveness covered period. For example, the SBA wrote, a borrower with a covered period that ends Oct. 30, 2020, has until Aug. 30, 2021, to apply for forgiveness before loan repayment begins.

26. What changes has Flexibility Act brought in?

The Flexibility Act extended the covered period for a PPP loan from June 30, 2020 to Dec. 31, 2020 and the covered period for loan forgiveness from eight weeks to 24 weeks. Borrowers receiving a PPP loan before June 5, 2020 may still use an eight-week loan forgiveness period. Additionally, the Flexibility Act extended the maturity date of a PPP loan to five years for loans made after June 5, 2020 (and for loans before June 5, 2020 if mutually agreed by the borrower and lender).

27. As per the Flexibility Act, how much time do the borrowers have to apply for forgiveness before the deferral period ends?

Under the Flexibility Act, borrowers now have 10 months from the end of the loan forgiveness covered period to apply for forgiveness before the deferral period ends and payments must begin. A borrower may submit a loan forgiveness application before the end of the covered period if it has used all the loan proceeds for which it is requesting forgiveness. However, if a borrower applies for forgiveness before the end of the eight-week or 24-week covered period, any excess salary reduction must be accounted for over the full covered period.

28. In how many days can a borrower receive the decision on completed Loan Forgiveness application?

The SBA finally released guidance on the loan forgiveness application process. Borrowers can submit loan forgiveness applications on SBA Form 3508 or 3508EZ to their lenders with all required supporting documentation. A lender has 60 days from receipt of a complete application to issue a decision, and subject to any SBA review of the loan, the SBA must reimburse the lender for the forgiveness amount within 90 days. Borrowers may request an SBA review of a lender’s decision to deny forgiveness and may appeal any SBA decisions to the SBA’s Office of Hearings and Appeals (OHA).

29. Are rent payments eligible for forgiveness?

The SBA also confirmed that rent payments to related parties are eligible for forgiveness if 1) such payments do not exceed the amount of mortgage interest owned on the property during the covered period; and 2) both the mortgage and lease were entered into before Feb. 15, 2020. There are proposals in Congress that could impact loan forgiveness, including a proposal to eliminate the application process and provide automatic forgiveness for loans under $150,000.

30. What is Form 3508s?

The new application form, SBA Form 3508S, can be used by PPP borrowers applying for forgiveness on PPP loans with a total loan amount of $50,000 or less, unless those borrowers together with their affiliates received loans totaling $2 million or more.