Have All PPP Loans Been Forgiven?
Updated: Jul 15, 2021
Considering that $782 billion of PPP loans have been made, with $522 billion under the 2020 program and $260 billion under second round program, and these loans may be forgiven if funds were used for the intended purposes, most people would assume these loans have already been forgiven. Surprisingly, that is not an accurate assumption.
As of May 24, 2021 the SBA reports the 2020 PPP volume of $521.2 billion loans in the following categories - forgiveness granted, forgiveness denied, and forgiveness applications under review.
$279.4 billion has been forgiven.
$1.0 billion has not been forgiven.
$81.5 billion is under review.
Of the 2020 PPP loans, $159.1 billion of loans have not yet submitted applications for forgiveness.
While less than 1% of submitted loan applications have been denied, the real story seems to be the amount of loans that have not yet applied for forgiveness. Of the total loans made, 30.54% of total dollars loaned have not yet applied for forgiveness. This is 1.7 million different PPP loans or 33.04% of the total number of loans made.
What loan amounts are eligible for forgiveness?
First draw PPP loans qualify for forgiveness if during 8 to 24 weeks following the PPP loan disbursement, employment levels are maintained funds are used appropriately. To be eligible for forgiveness:
Employee and compensation levels were maintained, AND
The loan proceeds were spent on payroll and eligible expenses, AND
At least 60% of the proceeds were spent on payroll costs.
Second draw PPP loans have these same requirements.
When can a borrower apply for PPP loan forgiveness?
A borrower may apply for forgiveness once the funds have been used, and up to the maturity date of the PPP loan. Maturity dates for loan numbers received prior to June 5, 2020 have two year terms and loan numbers received on or after June 5, 2020 have five year terms. Lenders and borrowers may mutually agree to extend the two year term to five years for loan numbers received prior to June 5, 2020.
When do loan payments begin?
If PPP loan borrowers do not apply for forgiveness within ten months after the covered period, then loan payments re no longer deferred and borrower will need to begin making loan payments to the PPP lender.
The PPP note will either be repaid in equal amortizing month/quarterly payments beginning on the first day of the month following the end of the deferment period, or the PPP note will require monthly interest only payments with a lump sum principal and interest payment due at maturity.
Why have borrowers not applied for PPP loan forgiveness?
Of the first round PPP loans, over 30% of the total loans made have not had forgiveness applications submitted. For lenders, this is troubling.
At this point in time, the first round loans should be eligible for forgiveness and the deferral period for loans may be ending soon. Each lender will need to evaluate its current PPP loan portfolio to determine:
How many PPP loans (dollars and loan count) were made?
How many forgiveness applications have been received?
How many of those applications were approved by the lender?
How many of those applications were approved by the SBA?
Have any of the loans been denied forgiveness?
Of the loans that have been denied, the lender will need to establish payment programs and notify the borrower of the payment requirements.
Of the loans that have not had forgiveness applications filed, the lender will need to contact each borrower to determine issues.
For example, a business owner may not understand the forgiveness process. In those situations it may be possible to help the borrower understand what needs to be done to apply for and receive PPP loan forgiveness from the SBA and the PPP loan lender. Another reason a borrower may not have applied for the PPP loan forgiveness could be that the borrower is evaluating the opportunity to utilize Employee Retention Credits (“ERCs”), which may impact wages eligible for PPP loan forgiveness.
It is also possible the PPP loan proceeds were not used for eligible purposes but the business continues to operate. In this situation a lender will need to work with the borrower to begin payments, and will need to deal with the SBA and the borrower if there were any questions on immediate repayment of funds used for ineligible purposes.
The most troublesome situation would be a fraudulent loan application. This will mean the lender will need to consider civil and criminal repercussions to the borrower. In April and May of 2021 the Department of Justice announced multiple arrests, indictments, sentencings and forfeitures related to Covid-19 relief fraudsters. For example, on May 12, 2021 a Southern District of Florida judge sentenced a man to more than six years in prison for fraudulently applying for and receiving $3.9 million in PPP loans which were used for items such as a $318,000 Lamborghini. In the District of Connecticut, on May 7, 2021 an individual was charged criminally with bank fraud and wire fraud related to $2.9 million in Covid-19 relief funds. These are just two examples of many already identified fraud cases from across the country. So far, most of the cases have involved straightforward frauds, such as providing false information on loan applications, falsifying the number of employees and payroll costs, submitting multiple PPP loan applications to different lenders, and diverting funds for personal use.
A rough estimate of timing for a PPP loan and repayment requirements would be this:
The PPP loan funds June 30, 2020.
The 24-week period to spend the money for eligible purposes ends approximately December 31, 2020.
The 10-month payment deferral period ends approximately October 31, 2021.
Loan payments need to begin in November 2021.
The surprisingly high number of PPP loans that have not yet had an application for forgiveness filed is troubling. Using the rough timing estimate above, lenders would have between now and the end of October to contact this borrower and identify the issues precluding loan forgiveness, begin the forgiveness process, or begin the repayment and recovery process. Lenders need to evaluate their PPP loan portfolios immediately to begin to identify any risks and put together a resolution plan for these loans.