The Small Business Administration (SBA) has just made a number of updates to the regulations governing PPP loans that are being welcomed by borrowers and their advisors. These new rules will save tens of thousands of hours for borrowers, accountants, banks and the SBA.
Please join Brandon Ketron, JD, CPA and I on Saturday August 7th at 10:00am EST for a free 30 minute webinar discussing the above as well as recently issued Notice 2021-49 which provides guidance on the Employee Retention Credit and is discussed in our Forbes article titled Newly Issued Employee Retention Credit Guidance Punishes Owner Employees If They Have Living Family Members. The webinar can be registered for by emailing info@gassmanpa.com with PPP in the subject line.
The primary changes are as follows:
Streamlined Portal System for Borrowers Who Received Less Than $150,000
Perhaps the most significant change was the much anticipated opening of the online portal yesterday (August 4), where small businesses that borrowed up to $150,000 may apply to have their loans eliminated. This portal is meant to streamline the process for loan forgiveness, which is currently managed by the SBA through respective individual lenders. These changes came into effect on the 28th of July 2021 (two days prior to when the Rules and Regulations were updated).
The most significant element of the new streamlined process is the “opt-in” alternative method of processing loan forgiveness applications. Currently, lenders are individually responsible for their own internal collection of loan forgiveness applications, which they are then required to submit to the SBA for approval. This simplification will be available to those who borrowed a total of $150,000 or less. Apparently 93% of PPP borrowers fall within this demographic, so this is welcome news for a great many small business owners.
By opting into the direct borrower forgiveness process, all of a lender’s borrowers with loans under the maximum $150,000 will be able to submit the equivalent of Form 3508S in an online portal. After that form is submitted, the lender will be able to review the application and submit a decision for forgiveness to the SBA, all from within the online portal.
Borrowers who have already submitted their application for forgiveness on combined loans under $150,000 are encouraged not to send duplicate applications through the new Platform, and risk over-complicating the process.
Borrowers should be aware that using the new streamlined platform is not mandatory. In fact, several large lenders with better established infrastructure to handle the overload of applications have not yet opted-in. In these instances, borrowers must continue to submit loan forgiveness applications directly to their lenders. The improvement is well catered towards the thousands of smaller businesses who are struggling with the logistics of filing applications.
Many Second Draw PPP Borrowers Will Be Able To “Prove” the Required 25% Reduction in Revenue by Using a Special Scoring System
The Interim Final Rules also introduce the COVID Revenue Reduction Score, which is used at the time of forgiveness to document the revenue reduction required to qualify for Second Draw PPP Loans. In order to be eligible for a Second Draw PPP loan, the borrower must have had a reduction in revenue of more than 25% for any calendar of 2020 as compared to the same quarter in 2019.
Borrowers requesting loans of less than $150,000 were allowed to self certify this revenue reduction requirement, and were not required to submit documentation with their initial loan application as long as it was submitted prior to receiving loan forgiveness. Designed by an independent third-party contractor, the new COVID Revenue Reduction Score accounts for a variety of inputs such as industry, geography, and business size. If the total score satisfies the revenue reduction requirements, then the borrower will not be required to submit any additional documentation, and may rely on the Covid Revenue Reduction Score to satisfy the 25% revenue reduction requirement regardless of the actual revenues of the business.
This new COVID Revenue Reduction Score may be used for “all Second Draw PPP Loans for which the lender has not yet issued a loan forgiveness decision to SBA as of the effective date of the interim final rule.”
Special Deferment of Repayment Extension for Borrowers on Appeal
The new Interim Final Rules also extend the loan payment deferment period for borrowers that file an appeal regarding a final SBA loan review decision with the SBA Office of Hearings and Appeals (OHA). If a borrower files a timely appeal to a final SBA loan review decision, then the borrower will not be required to make payment on their PPP loan until a final determination on the appeal is received from the OHA.
These changes follow another recent update from the SBA. Since October 2020, PPP borrowers with loans of $2 million or more have been required to fill out a Loan Necessity Questionnaire Forms 3509 and 3510. This questionnaire included basic information, such as gross revenue, contact information, the effects of the COVID pandemic on business operations, and an assessment of the liquidity of the borrowers finances. As of July 29, 2021, the SBA has discontinued the questionnaire forms.
This decision was based upon the belief that government audit resources would be better spent in other areas. The questionnaires were causing unnecessary delays to the borrowers acting in good faith, and subsequently detracting from the value of the entire program. All PPP loans in excess of $2,000,000 are subject to audit by the SBA, so the Loan Necessity Questionnaire may still be of utility to large borrowers as it provides guidance on questions the SBA may ask in its review, but is no longer required to be submitted with Loan Forgiveness Applications.
Hopefully this will be a small relief for larger borrowers who would have been otherwise unaffected by the new online portal.