PPP Loans: SBA Extends Safe Harbor, Partnership and Seasonal Business Access, 100% Forgivable Money Still Available

Business Finance | 5 Min Read

SBA Extends PPP Loan Safe Harbor. Forgivable Money Still Available

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Uncertainty Abounds

Over the past several weeks, the SBA's and Treasury's uneven administration and rules guidance of the PPP, created a large amount of uncertainty for many businesses who already applied for and obtained their loan proceeds. A series of rule changes, guidance and press releases by the SBA and Treasury have many businesses giving back their PPP Loan proceeds out of fear they no longer qualify and may be subject to criminal prosecution. Many other businesses are reluctant to even apply for PPP loans due to the perceived risks.

Borrowers Frustrated
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Borrowers report requirements are challenging to either comply with or to meet in order to qualify for maximum loan forgiveness. Nearly half they say using the loan within the eight-week window is somewhat or very difficult, and the same percentage finds it very or somewhat difficult to get employee headcount back to pre-crisis levels. New guidance issued May 13, meant to relieve PPP loan recipients confusion and anxiety, is being met with broad relief from PPP participants and potential applicants who may be sitting on the fence, and is available from the SBA at PAYCHECK PROTECTION PROGRAM LOANS Frequently Asked Questions (FAQs) and from the US Treasury website at PAYCHECK PROTECTION PROGRAM LOANS.

Treasury/SBA Update

There are a 47 questions and answers providing updates and clarifications from the SBA. The top changes with the greatest potential impact are:

• the expansion of the program allowing lenders to increase PPP loans to partnerships to include appropriate amounts to cover partner compensation. 
• the allowance for seasonal employers to calculate their maximum loan amount using the alternative criterion issued April 28.
• the extension of the safe harbor for returning PPP loans from May 14 to May 18 that gives an opportunity for borrowers that received PPP loans to return them if they are not able to make a good-faith certification of the necessity of their loan requests .
• the SBA issued guidance for businesses who, together with their affiliates, accepted PPP funds of less than $2 million, will be assumed to have performed the required certification concerning the necessity of their loan requests in good faith.

Owner Questions

Business owners have questions about how to spend the funds and what they can spend the loan on as many of the terms and conditions are broad and unclear when applied to specific business operations. "Nearly three-fourths of small business borrowers find the terms and conditions of the PPP loan difficult to understand with 22% finding them very difficult,” the SBA report said. While many PPP participants are relieved about the guidance, there is still significant apprehension that additional changes may occur resulting in unexpected non-compliance by businesses who are attempting to act in good faith. As a result, many advisors, including Critical Mission Consulting, Inc., a Denver business consulting firm, are counseling a conservative wait and see approach, when possible.

What To Do

Critical Mission Consulting, Inc. President, T.J. Agresti, sad about their business clients, "there is nothing that requires businesses to spend their PPP proceeds immediately. We are telling businesses, especially those planning to request loan forgiveness, to hold off on spending their loan proceeds and to wait as long as possible within the 8 week loan forgiveness period." 

Main Street advocates are eager to see lawmakers move ahead with proposed changes when the House votes on the Paycheck Protection Flexibility Act, which makes tweaks to the PPP, including extending the covered-period window of eight weeks and the split on what the funds can be used on. The proposed changes have bipartisan support and could encourage more business owners to apply for aid. “No doubt, these key changes will make the program work more effectively for small businesses and their employees.

​These changes also align with conditions on the ground,” said Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council. “PPP needs to be structured more flexibly at this point given the very different stay-at-home and shutdown orders in the states, and the very different plans and phases for re-openings, which will drive demand,” she said. “A one-size-fits-all PPP program does not work — things have changed tremendously since the design of the program in early to mid-March.”

However, some business have no choice but to spend their PPP loan proceeds to keep their business afloat. "We are advising our clients to spend 75% on payroll qualifying expenses but if its between losing your business or having to repay the PPP loan, then do what needs to be done and save your business," said Mr. Agresti. These business have no choice but to ride out the uncertainty surrounding guidance of the PPP and hope they are compliant with the final rules.

There is momentum to make the program more flexible and the addition of the safe harbor should cover the vast majority of borrowers.  Businesses who accepted under $2 million covers over 98% of Phase One loans and over 99% of Phase Two loans according to the SBA. The risks associated with taking a PPP loan may now be acceptable for many more businesses who were in a holding pattern waiting to spend their loan proceeds or  apply for a new loan.

Money Still Available

There is still an opportunity to apply for and receive forgivable loans from PPP. The program has $126.5 billion in funding left, according to the Small Business Administration. A careful review, with advisors, of the application requirements, and the rules on how to obtain forgiveness, if that is the goal, are a must. Forgiveness is available if you use 75% of the loan for payroll but even if you don't want forgiveness, the loan is still inexpensive capital with a 2 year term and an interest rate of 1%.  

For more news and reporting on the coronavirus and how businesses can handle challenges related to the Paycheck Protection Program and the pandemic, visit T.J.'s blog page or go to the Critical Mission Consulting website Coronavirus resources page.