SBA rapid lending portal helps PPP borrowers, but uncertainties remain
Small Business Administration’s Direct Forgiveness Portal for Paycheck Protection Program Loans has been offering businesses a streamlined way to waive PPP loans of $ 150,000 or less since it opened last month, but accountants are paying attention to the COVID revenue reduction points the SBA is for used to make statements.
The SBA carried out the PPP portal for direct forgiveness on August 4th to streamline loan waiver for both borrowers and lenders who have chosen the system (see story). Within the first two weeks, the portal had received more than 340,000 submissions from borrowers with loans of $ 150,000 or less, according to the SBA. However, according to around 6% of borrowers, they have to repay at least part of their loans data from the SBA cited by Marketplace, and the criteria for full credit waiver are not entirely clear.
The PPP application and lending process has been complicated, with unclear rules and ever-changing processes since the SBA offered several rounds of PPP loans to help small businesses cope with the COVID-19 pandemic last year. Accountants have assisted their clients in applying for the PPP loan and then applying for forgiveness. The direct forgiveness portal promised to provide a more convenient way for businesses to withdraw their loans, but not all lenders are on board and some of the larger banks still prefer to use their own portals.
“I think banks prefer to use the platform the way they have used it before,” said Todd Sprang, executive director of the CliftonLarsonAllen office in Oak Brook, Illinois. “If a lender has a proven system for receiving and processing applications, they tend to stick with it as running a second system is a bit problematic. It takes a little more uptime and energy to learn and work through this system. Also, there may be some keystroke errors and then lenders will have to spend time working this through with the borrower. Ultimately, in the near future, their borrowers may find it a little more frustrating to use this system in place of their existing system. However, it can be of great benefit to lenders who did not have a system in place to help them. “
The new direct lending portal operated by the SBA, with its revenue reduction function, could be helpful for some CLA customers who did not provide their bank with information on revenue reduction when the initial loan application was made, said Jack Rybicki, managing director of CLA Private Capital. This is especially true for companies that took advantage of the 2021 version of the program after Congress revived the PPP. It could streamline the process for companies that had to file the SBA’s Form 3508S PPP Loan Cancellation. In order to be eligible for a so-called “second drawing” PPP loan, PPP borrowers had to accept a decline in sales of no less than 25% during a quarter of 2020 compared to the same quarter of 2019 SBA guidelines.
“For these PPP-2 borrowers in particular, we believe this will be a preferred system because of the new revenue reduction rating that is out there,” said Rybicki. “For PPP-1 borrowers, we suspect that the new system and the bank’s systems are likely to require similar information, although this is concerned that the SBA system may require more information than the banks requested in relation to the 3508S forms would have. For PPP 2 borrowers, however, the ability to not have to provide documentation to support the 25% revenue reduction due to the new revenue decline score may be a significant benefit as many of our small businesses do not report quarterly information and have therefore had problems completing it Provide information to support the required revenue declines. “
The SBA portal could also be helpful for many banks. “For those lenders who received this documentation in advance in the creation process, it was a rather lengthy process to adhere to these documentation standards,” said Sprang. “Relief is real to these people.”
Accountants can also benefit from being able to use a single portal instead of multiple portals from different banks and lenders for their small business customers looking to waive their PPP loans. “From the perspective of an accountant working with small businesses, in most cases they need to learn the portal system, whatever it is, be it an outsourced portal that a bank developed, or a custom portal that the bank developed or now the SBA system, ”said Rybicki. “The potential benefit of the SBA system is that you can learn that one system and serve customers across multiple lenders. This could also be an advantage from the accountants’ point of view, as they may no longer have to learn to use as many bank portals as they had to in the past for issuing PPP loans. “
While the 3508S forms are still available for PPP loan issuance of $ 150,000 or less, the SBA recently removed two additional loan waiver application forms for larger loans, Forms 3509 and 3510, with hooks on evidence of economic need.
“Forms 3509 and 3510 were only relevant for borrowers over $ 2 million, so this would not necessarily affect the small businesses to which this portal applies, which from the borrower’s point of view are $ 150,000 or less,” said Rybicki. “Frankly, all borrowers should have the economic necessity. When the SBA withdrew the requirement to fill out these forms for larger borrowers, all they need to do now is to provide other documents to support the attestation they created that there was an economic need at the time they applied for the loan. You still have to give when you are a major borrower. “
The smaller companies didn’t have to go that far in demonstrating economic necessity.
“The small businesses were effectively started and there was no challenge or need to justify the economic need,” said Rybicki. “That was based on the guidelines of the SBA. Last year it found that having loans below $ 2 million would not question whether or not there was an economic need, so it was never a criterion for the small businesses.
That could change with further signs of fraud in the PPP. According to state watchdogs and independent estimates, billions of dollars could have been lost to fraudsters in the US and abroad (see story).
Another factor is the employee withholding tax credit that Congress allowed small businesses to apply for the paycheck protection program last December, but the interaction between the two programs can be complex and slow down the lending process.
“We’re pretty much involved with the ERC, too, and that made the award process a lot more difficult because there are now companies that can’t take advantage of both PPP forgiveness and loyalty credit,” said Rybicki. “You are not allowed to use the same payroll to get the benefits of PPP forgiveness and loyalty credit, so it has now complicated the award process because you have these two programs working together. Splitting your payroll between these two programs to maximize forgiveness, first because this is a dollar-for-dollar benefit, and second, employee loyalty credit because it is a lesser benefit, makes things very complicated now, but it is a very one real thing is now going on with our customers, because the employee loyalty credit is an enormous advantage in addition to the PPP. “
The IRS recently issued guidelines on the employee loyalty loan due to expire at the end of the year or perhaps earlier to pay the bipartisan infrastructure bill (see story).
“If the Infrastructure Act is passed as it is currently written, this program will expire for most companies at the end of the third quarter rather than the end of the fourth quarter of this year, so the potential benefits would be limited,” said Rybicki. “There are certain companies that are recovery startups that would run through the end of the year, but if you are not a recovery startup you can only use the ERC until the September quarter.”
Recovery startup companies are those who started conducting a trade or business after February 15, 2020, had less than $ 1 million in gross annual income, and met several other conditions specified in the IRS guidance.
The results of the SBA on revenue reduction add to the uncertainty for borrowers, especially since it is a mystery who creates the results and how they do it. “First, the SBA hired an independent contractor to formulate these ratings based on a variety of factors including industry, geography and company size,” said Rybicki. “We work with small borrowers and large borrowers alike, and we are keen to hear more about how these factors have been factored into these earnings reduction scores to see if this gives us any insight into how we look at the SBA . larger borrowers and examining these $ 2 million loans for economic need. We hope that if we understand the methodology for the yield reduction assessment a little better, we can advise our clients better on the audit risks even with these larger loans. ”
Despite the complexities and uncertainties, the new changes in PPP lending should simplify the process for many small business customers, whether they come from rule changes or the new portal.
“The SBA’s efforts to expedite the award process have been successful in introducing the simplified forms for borrowers with lower balances of $ 150,000 and below, so I applaud them for doing so,” said Sprang. “I applaud your efforts to move the process forward to achieve as much forgiveness as possible by the end of the third quarter of this year. And I hope that the opening of the new platform or portal will further promote these goals or work towards them. I just think it will have less of an impact than the simplified forms, but it’s a positive development and we recognize the effort they have made to move things forward. As we have seen, the lending rate has accelerated, which has been a very positive development in the last few months. “