PPP

Just a few months ago, financial institutions were scrambling to process applications for Paycheck Protection Program (PPP) loans. The money came from the CARES Act, intended to provide emergency relief to businesses financially devastated by the COVID-19 pandemic and stay-at-home orders.

Fast-forward to today, when businesses are starting to apply for loan forgiveness. Compared with the application process, “People aren’t in a rush,” said Kristin Smith, a Small Business Administration (SBA) lender for 3Rivers Federal Credit Union.

Smith said when the loans became available April 3, “It was a madhouse.” She and fellow loan officers were “working night and day, seven days a week, 12-15 hours a day.”

Then on April 16, just two weeks later, the $350 billion allocated to the program from the SBA ran out. The PPP lending resumed April 23 as part of a new package that included $310 billion for a second round of PPP loans, $10 billion for SBA economic injury disaster grants, and $50 billion for SBA economic injury disaster loans, which cannot exceed rates of 4% or repayment periods of 30 years.

The SBA stopped taking applications for PPP loans Aug. 8. 3Rivers processed 577 PPP loans. So far, 100 borrowers have applied for loan forgiveness.

The SBA started approving PPP loan forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers Oct. 2.

There’s a reason why Smith and other loan processors haven’t seen a rush to file for loan forgiveness. Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower’s loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness, which is either 8 weeks or 24 weeks.

Those who don’t seek loan forgiveness are charged an interest rate of 1%. Loans issued before June 5 have a maturity of two years. Loans issued after June 5 have a maturity of five years.

The PPP loans were designed specifically to incentivize small businesses to keep their employees working during the COVID-19 crisis. Borrowers may be eligible for loan forgiveness if the funds were used for eligible payroll costs, payments on business mortgage interest payments, rent or utilities during either the 8- or 24-week period after disbursement. A borrower can apply for forgiveness once it has used all loan proceeds for which the borrower is requesting forgiveness.

Changes have been made recently to simplify the forgiveness process for some businesses that took out PPP loans.

In October, the Small Business Administration, in consultation with the Treasury Department, released a simpler loan forgiveness application for PPP loans of $50,000 or less. The action streamlines the PPP forgiveness process for both the borrowers with loans of $50,000 or less and the thousands of PPP lenders who worked long hours to process loans quickly, according to Treasury Secretary Steven T. Mnuchin, who said the new process helps lenders process forgiveness loans faster.

Smith said she didn’t notice much difference between the old form and the new form as far as the time it took to fill it out. She said the SBA has 90 days to process their portion of the forgiveness process. Lenders have 60 days, but “We’re at a two-week turnaround,” she said.

She said they use a four-step vetting process to determine loan eligibility. While grueling, especially during that chaotic initial period when so many businesses were trying to apply, she understands the importance of the work because it is a taxpayer-funded program, requiring good stewardship of taxpayers’ dollars.

Information provided by the SBA and Mnuchin sheds light on the impact of the PPP program. It has provided 5.2 million loans worth $525 billion to American small businesses. That economic relief supported 51 million jobs, Mnuchin said.

Other statistics of note:

• 27% of the PPP loan money went to low- and moderate-income communities

• More than $133 billion, or 25% of PPP loans, was approved to small businesses in historically underutilized business zones

• Over $80 billion, or 15%, of total PPP dollars were approved for small businesses in rural communities.

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