Delay in PPP remittance process brings uncertainty and concern for some CT borrowers
After several months of delays, the federal government has started forgiving some of the roughly 65,000 stimulus loans given to Connecticut employers in the spring and summer to help them stay afloat during the COVID-19 pandemic.
Banks and other institutions participating in the Paycheck Protection Program, which issued $ 6.7 billion in loans in Connecticut this year, began in August to submit remittance documents to the U.S. Small Business Administration- United on behalf of the borrowers. The first loans were canceled last month and the money was sent to the banks which issued the credits and provided the initial liquidity to the companies.
The SBA had a backlog of more than 96,000 pardon applications across the country before the money started flowing back to lenders, Politico reported.
David Rotatori, CEO of Naugatuck-based Ion Bank, which wrote about $ 175 million in PPP loans, said his bank had so far asked the SBA to forgive several hundred loans. The agency only acted on a small number of them, approving all of them and sending Ion about $ 3 million in rebate payments.
Rotatori said he had always assumed the process would start slowly, due to the logistical challenges posed by an unprecedented volume of loans.
“[The SBA] is gaining a foothold and slowing it down, just like us, ”said Rotatori, whose bank has several branches in Greater Hartford. “They will process them, I think, faster and faster. It will continue to increase. “
While the loan cancellation process begins for some businesses, uncertainty remains for businesses that have taken out PPP loans of $ 2 million or more.
Spurred on by media coverage this summer of state-owned companies and other well-capitalized companies that have received PPP loans, the SBA has promised for months a closer scrutiny of large borrowers, to determine whether they really need the loan. ‘help.
In Connecticut, about 371 borrowers have received loans worth between $ 2 million and $ 10 million, according to SBA data.
The SBA recently created questionnaires that survey the 2020 performance of large borrowers and other financial details, leaving some wondering how loan examiners might use the information to make their forgiveness decisions.
So far, it’s unclear how many Connecticut loan forgiveness requests have been approved by the SBA. A spokesperson for the agency said data was not yet available.
In September, the federal Government Accountability Office reported that banks had sent 56,000 loan cancellation decisions to the SBA as of September 8, a tiny fraction of the 5.2 million PPP loans issued nationwide this year.
This number has surely increased since then as more and more banks started to accept customer requests en masse.
Ion Bank has received pardon application documents from about 40% of its approximately 1,700 PPP borrowers. She submitted about half of these requests to the SBA and received pardon decisions for 5% of them.
The rules of the SBA are complex, but in general, to be eligible for a full discount, borrowers must have spent at least 60% of their PPP funds on personnel costs and the remainder on other eligible expenses such as rent and utilities. audiences, all within a certain period of time. . Borrowers who have not maintained their enrollment according to the SBA calculation method could benefit from a partial forgiveness of their loan.
P3 borrowers still have plenty of time to ask for forgiveness before they have to start making monthly payments to their bank or credit union. For example, the first beneficiaries of the PPP, who received their loans in April, have until July or August 2021.
However, there has been conflicting advice for borrowers on whether to apply for the PPP discount right away or wait a little longer.
Rotatori says it’s better to end it.
“You know what you know at this point, you might as well do it and step into the New Year with a new understanding,” Rotatori said. “It’s easier to do it now and not have to take the risk of potential additional review or tax law changes.”
However, there are concerns that the SBA’s recently created “need for loan” questionnaire indicates that the agency will apply a stricter filter in its forgiveness decisions related to loans of $ 2 million or more.
Rotatori said Ion Bank has around 10 larger PPP loans and has submitted a few to the SBA for surrender, but has yet to receive a decision.
Regional accountants say the loan necessity form recently revealed by the SBA – which asks PPP borrowers over $ 2 million for a comparison of 2020 and 2019 income as well as data on cash balances and dividend distributions to owners – creates some anxiety, according to Drew Andrews, managing partner and CEO of Hartford-based accounting firm Whittlesey, who said the initial understanding of P3s earlier this year was that loans were designed to be forgiven.
“There’s always been this attitude or implied reasoning that they don’t want this money,” Andrews said. “Now that kind of changes that thought process, in my mind. They’re getting a little more stringent.
There are also potential tax implications for borrowers whose loan is officially canceled by the end of the year, he said.
Of course, it’s unclear how things will turn out at the SBA, Andrews added.
The recent election, which saw Democrat Joe Biden win the presidency from Donald Trump and the Republican Party retain the Senate, only add further wrinkles to the results forecast.
Some hope Congress will adopt more lenient loan forgiveness rules.
While it can still happen, Michael Maksymiw Jr., a partner at accounting and consulting firm Marcum LLP, said that it is probably best for many companies to initiate the remittance process, assuming they meet guidelines. loan forgiveness.
Loans of $ 50,000 or less are particularly likely to gain forgiveness approval, since the SBA has reduced the amount of information a borrower must provide.
“If none of your expenses are questionable,… then you might want to go ahead and apply,” Maksymiw said.
However, he said there are some PPP scenarios for which the SBA has yet to release detailed guidelines, which means it may be safe to wait to apply. One concerns companies that have laid off workers after receiving a loan and then hired family members to replace them. Another concerns companies that have different tax structures for their real estate and operations.
“If anything gives you a break as a borrower, so far the best course of action in all aspects of this issue has been patience,” he said.