Paycheck Protection Program

 

The Small Business Administration and US Treasury has recently released additional guidance on “The Paycheck Protection Program Flexibility Act of 2020.” The new guidance will allow banks to extend the deferral period for PPP loans an additional 10 months from the 24-week covered period. The covered period started the day your PPP loan was disbursed.

What that means is that your first payment will be extended for 10 months from the last day of your covered period, so you will not have a payment due until that time. Also, you do not need to sign any formal modification. SBA only requires the bank notify you of the deferral.

Don’t be alarmed if you haven’t started the forgiveness process yet. You have 10 months from after the last of day of your covered period to apply for forgiveness. As of last week, there had only been 2% of the total PPP loans submitted to the SBA. Congress is the middle of trying to agree on a stimulus bill and in that bill there is a portion that will pertain to the PPP loan forgiveness. Part of the stimulus bill will be dealing with making it simpler for borrowers with PPP loans $150k and under to apply for forgiveness. The stimulus bill may not be approved until after the elections.

You can start the process of loan forgiveness at any time. SBA has started to accept forgiveness applications. For loans under $50k, you can use the 3508S application for forgiveness. For loans over $50k, there are two applications, one is the 3508 and the other is the 3508EZ application. The 3508EZ form is easier to use for loans over $50k, but you will have meet certain criteria to use it.

The criteria needed to qualify to use the 3508EZ application:

  • You are an independent contractor, self-employed, or sole proprietorship who had no employees at the time of the PPP loan application and did not include any employee salaries in calculation of their average monthly payroll (when determining the eligible loan amount); or
  • Borrower didn’t reduce annual salary or hourly wages of any employee by more than 25% during Covered Period or Alternative payroll Covered Period and didn’t reduce the number of employees or the average paid hours of employees between 1/1/20 and the end of Covered Period; or
  • Borrower didn’t reduce salary or wages of any employee by more than 25% during Covered Period or Alternative Payroll Covered Period and was unable to operate during Covered Period at the same level of business activity as before 2/15/20 due to compliance with HHS. CDC, or OSHA restrictions issued between 3/1/20 and 12/31/20 related to COVID-19.

The documentation SBA requires from you to submit the forgiveness application includes:

  • Payroll: Proof of payment - Documentation verifying the eligible cash compensation and non-cash benefit payments (bank account statements, tax forms, payment receipts, cancelled checks, account statements); and
  • Nonpayroll: Proof of obligation and proof of payment - Documentation verifying existence of the obligations/services prior to Feb. 15, 2020 and payments (copy of lender amortization schedule, lease, utility invoices; copies of cancelled checks; and
  • For 3508 only: PPP Loan Forgiveness Calculation Form; PPP Schedule A; Documentation showing average number of FTE employees on payroll during referenced time periods
    Generally – (See Forms 3508/3508EZ for specific details)

Once we have received your completed Loan Forgiveness Application and supporting documentation, First Community Bank will review them under existing guidance and submit it to SBA. SBA will determine whether the loan will be 100% forgiven or subject to partial forgiveness. Once SBA has given us a final decision, we will inform you.

Any outstanding balance on your PPP loan which is not forgiven will continue to accrue interest at 1% for the remainder of the loan term. There is no prepayment penalty, and you can pay off that outstanding balance at any time without incurring any additional fees. Please refer to your PPP loan note for additional terms and conditions.

Keep in mind, the SBA may begin an audit of any PPP loan of any size and any time, subject to its own discretion. It is your responsibility to ensure the accuracy of all statements regarding eligibility and veracity of supporting documentation. We strongly advise you to meet with your accountant or legal advisor prior to submitting your application for forgiveness.

Click here for more information and a copy of the applications:
https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program

Thank you for choosing FCB to process and service your Paycheck Protection Program loan. We are proud to be able to assist you and our community during this difficult time.

Sincerely,

Gil Johnson Signature

Gil Johnson

CCO/SVP

First Community Bank