The Paycheck Protection Program (PPP) was an invaluable tool that helped many Atlanta companies manage through the COVID-19 pandemic. The loan program, which was initiated through the CARES Act, offered funding designed to keep operations going through government orders and restrictions. It even included a forgiveness option assuming funds were used on certain expenses including payroll, rent, mortgage interest payments, and more. The PPP was so successful there was a second draw option available for the hardest hit. In fact, Georgia companies alone received over $11B in PPP loans.  

Despite the popularity, some businesses were unable to take advantage of loan forgiveness. In certain circumstances, no forgiveness was granted while in other only partial forgiveness was allowed. This meant the borrower was required to repay the loan, which for many was quite unexpected. The good news is the Small Business Administration (SBA) recently issued a new SBA Procedural Notice to provide borrowers a second chance at loan forgiveness. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

New Loan Forgiveness Process

Now, PPP borrowers with only partial forgiveness can request an SBA review of the previous forgiveness application. Both types of forgiveness applications apply the regular process and the Direct Borrower Forgiveness process.

The new process took effect on January 27, 2022. The SBA will review borrower eligibility, PPP loan amounts and use of proceeds, and loan forgiveness amounts.

Borrowers may request an SBA review in either of these two instances:

  1. The lender issued a partial approval decision to the SBA on the borrower’s loan forgiveness application.
  2. The lender required the borrower to apply for forgiveness in an amount less than the total PPP loan.

If the loan has already been partially forgiven:

  • The lender has 30 days from the time they receive the SBA’s Procedural Notice to notify borrowers of their right to an appeal.
  • Borrowers then have 30 days to submit their request for a review.
  • The lender then has five business days to notify the SBA.

If the loan has not yet been forgiven:

  • The lender still has 30 days from receipt of the Procedural Notice to notify borrowers of their right to receive an SBA review.
  • If a review is requested, the above timetables of 30-day and 5-day response times apply.

After a borrower requests an appeal, the SBA will either return a decision that upholds the lender’s original forgiveness application or reverses it in full or partially. It’s also possible that the SBA can return a decision that results in less forgiveness than what was already granted. Whatever the decision, the lender has five days to notify the borrower.

Next Steps

As noted earlier, the SBA considers fully forgiven loans as those in which the borrower either requested – and was granted – the full amount be forgiven, or a lesser amount. If the borrower chose, on his or her own, to submit a forgiveness application for less than the total loan amount, the SBA’s new forgiveness appeal process won’t apply.

The process is designed to help those who disagree with the lender’s forgiveness decision. Once a request for an SBA review has been submitted, the lender may attempt to work with the borrower to ensure all documentation and calculations are thorough and correct. In some cases, lenders may decide to independently review the loan forgiveness application. If it is determined a revised loan forgiveness amount is due, the lender is responsible for notifying the SBA.

Borrowers awaiting a decision from the new appeals process must continue to make payments; the PPP loan amount in question is not deferred. If the SBA determines that the partial forgiveness should be reversed and full forgiveness granted, it will refund the lender, and the lender will in turn refund the borrower. If needed, the SBA will adjust forgiveness refunds for amortization.

If loan forgiveness is adjusted, there could be tax implications as well. Forgiven funds are non-taxable. However, if a borrower was making payments on a partially forgiven loan, and that amount is later reversed, an amended return may need to be filed to reclaim the full deductibility of forgiven expenses. In addition, pass-through entities may need to adjust the tax basis for partners and shareholders if full forgiveness is granted.

Contact Us

The new guidelines provide an important opportunity for those that did not receive loan forgiveness to have the SBA review the decision. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.

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Author Of this post: Josh Crisp

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