When Should Firms File for PPP Loan Forgiveness?
Loans provided to small businesses under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security (CARES) Act may be forgiven under certain circumstances. On May 15, the U.S. Small Business Administration published an application form and instructions for businesses to use in applying for forgiveness.
An important question is, when should firms that are eligible for loan forgiveness file their applications? The answer depends on the circumstances. SBA guidance provides that the amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period that begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The amount of loan forgiveness may be reduced if the borrower’s headcount, or its employee’s wages and salaries, are reduced during the eight-week period. Such a reduction in loan forgiveness may, however, be mitigated, provided the business is able to fully restore its headcount or eliminate the wage and salary reductions by June 30.
Business groups have been urging Congress to push back the June 30 date to give employers more time to restore their workforces and eliminate any wage or salary reductions. In June, the U.S. House of Representatives passed legislation, the HEROES Act, which not only would extend the Jun. 30 date until Dec. 31, but also would extend the eight-week period to 24 weeks. The Senate will consider similar legislation. Because changing these dates could have a material effect on the amount of loan forgiveness, firms should consider waiting to file their forgiveness applications until it is clear what dates will apply.