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Michael Bosma: What second round of PPP funding means to entrepreneurs (Voices)

Michael Bosma

Covering Your Assets

Michael Bosma
Courtesy photo

On April 24, President Trump signed the Paycheck Protection Program and Health Care Enhancement Act (PPP & HCE Act), which includes provisions for $310 billion of additional funding to restart the Paycheck Protection Program (PPP).

In addition to the PPP funding, the PPP & HCE Act includes $60 billion for the SBA’s economic injury disaster loans (EIDL) and grants program. Of that amount, $10 billion is for emergency grants of up to $10,000 that do not have to be repaid and $50 billion is to fund loans under the EIDL.

Helping small and mid-size lenders and businesses

The $310 billion of additional PPP funding designates $60 billion for use by small and mid-size lenders. This new feature of the funding helps insure that borrowers applying to small and mid-size lenders aren’t disadvantaged in comparison to larger lenders who can dominate the SBA submission process.

This may help smaller businesses, which are more likely to seek help from small and mid-size lenders. This also means that if your lender told you they are not accepting applications that you might consider a smaller lender.

No change to PPP requirements and features

While the PPP & HCE Act provides additional funding, it does not change any of the eligible loan amounts or other program requirements or features, and the PPP is still scheduled to end on June 30.

The PPP & HCE Act does, however, make agricultural enterprises eligible for the EIDL program.

The fact that the features of the PPP remain unchanged is a possible disappointment for those who were hoping that a later application would yield a higher loan amount or more favorable terms.

However, borrowers seeking PPP loans pursuant to the second round of funding have certain advantages, including better knowledge of the eligibility requirements and payroll cost calculations and more time to formulate a hiring plan to maximize PPP loan forgiveness.

That said, they also face the challenge of having their application submitted into a heavy pipeline of applications that could quickly exhaust the available funds.

How long will round two PPP funding last?

Much speculation surrounds the question of how long the additional PPP funding will last.

Many lenders continued to accept and process applications after the program ran out of initial funding on April 16, anticipating additional money was on the way. It is expected that hundreds of thousands of applications are already in the queue — so most estimate the new funding will run out in 2 to 14 days.

Borrower demand remained high throughout the PPP’s initial 14-day life, and self-employed individuals and independent contractors only began applying on April 10, further adding to the pipeline.

When will the SBA application system reopen?

Because $60 billion of the PPP allocation must run through small and medium-sized banks, some lenders expressed initial concerns that the fund designations could either delay the reopening of the SBA’s E-Tran application processing system or that the SBA approval process would be slowed.

However, it appears those concerns were addressed earlier this week when the Treasury and the SBA began setting up a coding system for these smaller lenders, to prevent any delay. That is positive news for borrowers and lenders who would like the system to reopen as soon as possible.

What about forgiveness?

Loan forgiveness remains a significant issue, as both current and future participants in the PPP are dealing with the lack of guidance related to the forgivable amount of loans under the program. This issue is frustrating lenders and borrowers alike.

For many borrowers, their reporting period is already underway, yet they cannot accurately forecast forgivable amounts or remaining loan balances.

Lenders are challenged with borrower forgiveness questions that they can’t yet answer. Lenders are unable to forecast expected forgiveness in order to manage their balance sheet and liquidity needs.

More guidance is expected. Meanwhile, consider the steps you can take now to help your organization qualify for PPP loan forgiveness.

Please note that this discussion is general in nature, and not intended to be tax advice. Please consult with a CPA to get answers to your specific fact pattern. Todd Hayes from CLA assisted with this article. Follow me on Facebook to receive updates on current developments.

Michael Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at mike.bosma@claconnect.com.