PPP Pitfalls: Important Facts

by Debra Salas, Lead Lending Relations Specialist, SBA South FL District Office

There have been many misnomers out there about how PPP (Paycheck Protection Program) functions. Here are my top five:

“Several weeks have gone by without an approval for my PPP loan request and my lender told me that they are waiting on SBA to approve my PPP loan.”

The PPP loans are facilitated directly through the banks. Once the lender inputs their client’s loan request into our ETRAN system, they should receive an approval immediately. There is no need to manually submit the loan request to our 7(a) Loan Guaranty Processing Center like the bank may need to do during normal operations. Hence, no waiting weeks on the SBA for approval.

“My lender told me they are waiting for the SBA to fund my loan request.”

Banks are using their own money to fund all PPP loans. The SBA is the government agency guaranteeing the loan. Once the required 8-week period approaches, the bank will submit to the SBA for reimbursement. So, the bank is not waiting on the SBA to provide them with the funding before they can disburse to the borrower.

“I was told to call the SBA to apply for or to get a status update on my PPP approval.”

The SBA is not the lender of record, the banks are. Just like in our normal 7a lending program, the client works directly with the bank to originate, process, underwrite and close the loan. Each lender has their own unique protocols for their internal PPP process and the SBA District Offices do not have access to each lender’s timeline nor status report on funding.

“I was told I can only use PPP for payroll in order to get 100% forgiveness.”

Loan amounts will be forgiven, as long as the loan proceeds are used appropriately. At least 75% of the loan must be used to cover payroll costs. Up to 25% of the loan may be used to pay most mortgage interest on business property, lease or utility costs. The loan proceeds must be spent over the 8-week period after the loan is made; and, employee staffing and compensation levels must be maintained during this same period. If the PPP loan proceeds are properly managed and well-documented, then the loan can be potentially fully forgiven. Documentation must be provided to the lender to initiate the loan forgiveness process.

“I was told that because I have employees who don’t want to come back to work–even though I offered them a position– I am ineligible for the entire forgiveness since I originally included them in my payroll expenses.”

The PPP loan forgiveness is based on employee head count and not exact names of individual personnel. So, if you decided to replace him/her with someone else because your employee refuses to return (or, for another reason), that will suffice. Also, if you offered to re-hire them with the same salary/hours and have written documentation proving your good faith attempt to rehire and their subsequent rejection of your offer of reemployment, you can be granted an exception. In addition, the employee and employer should be aware that if an employee rejects the offer for rehire, the employee jeopardizes their eligibility to receive unemployment compensation.

Virtual Office Hours with SBA South Florida

This week, the South Florida District Office will host virtual office hours (Monday, Wednesday, Friday) to provide the latest information on how the SBA is helping small businesses with their economic recovery from the effects of Covid-19.

Monday, May 11, 2020
9am – 11am
11am – 1pm
Join Microsoft Teams Meeting
202-765-1264; Conference ID – 593 285 024

Monday, May 11, 2020 (Spanish)
11am – 1pm
Join Microsoft Teams Meeting
202-765-1264; Conference ID – 331 883 020

Monday, May 11, 2020
1pm – 3pm
3pm – 5pm
Join Microsoft Teams Meeting
202-765-1264; Conference ID – 133 615 222

Wednesday, May 13, 2020
9am – 11am
11am – 1pm
Join Microsoft Teams Meeting
202-765-1264; Conference ID – 593 285 024

Wednesday, May 13, 2020 (Spanish)
11am – 1pm
Join Microsoft Teams Meeting
202-765-1264; Conference ID – 331 883 020

Wednesday, May 13, 2020
1pm – 3pm
3pm – 5pm
Join Microsoft Teams Meeting
202-765-1264; Conference ID – 133 615 222

Friday, May 15, 2020
9am – 11am
11am – 1pm
Join Microsoft Teams Meeting
202-765-1264; Conference ID – 593 285 024

Friday, May 15, 2020
1pm – 3pm
3pm – 5pm
Join Microsoft Teams Meeting
202-765-1264; Conference ID – 133 615 222