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When first introduced, the Paycheck Protection Program (PPP) acted as a lifeline for businesses impacted by forced closures or dwindling demand due to concerns about virus transmission. The efforts to contain the COVID-19 pandemic, although necessary for public health, created significant financial challenges. Due to these conditions, many had to lay off, furlough, or terminate employees. To prevent an economic freefall, the PPP was quickly rolled out, providing an immediate cash infusion to those in desperate need. It gained popularity because of the attractive loan terms and the possibility of forgiveness. Concurrently, the SBA also modified the Economic Injury Disaster Loan (EIDL) program to expand eligibility and even implemented an EIDL advance for applicants. Now that the focus has shifted to loan forgiveness, there has been a steady stream of new guidance and updates issued by the Small Business Administration (SBA). On August 11th, the SBA updated its loan forgiveness guidance to address how PPP borrowers’ EIDL advances will be recovered in the loan forgiveness process. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the recent updates below.
The SBA will deduct the amount of any EIDL advance received by a PPP borrower from the forgiveness amount remitted to the lender. How will a lender know the amount of the EIDL advance that will be automatically deducted by SBA?
If a borrower received an EIDL advance, the SBA is required to reduce the borrower’s loan forgiveness amount by the amount of the advance. The SBA will deduct the amount of the advance from the forgiveness amount remitted to the lender. The lender will be able to confirm the advance amount that will be automatically deducted from the forgiveness payment by reviewing the borrower’s EIDL advance information.
How should a lender handle any remaining balance due on a PPP loan after the SBA remits the forgiveness amount?
If a PPP loan is not forgiven in full (including if there has been a reduction in the forgiveness amount for an EIDL advance), any remaining balance due on the PPP loan must be repaid. The lender is responsible for notifying the borrower of the forgiveness amount and the date on which the first loan payment is due. The borrower must repay the remaining loan balance by the maturity date of the PPP loan (either two or five years). If it is determined the borrower was ineligible for a PPP loan for any reason, the SBA may seek repayment of the outstanding PPP loan balance or pursue other available remedies.
What should a lender do if a borrower received an EIDL advance in excess of the amount of its PPP loan?
A borrower that received an EIDL advance in excess of the amount of its PPP loan will not receive any forgiveness because the advance is deducted from the forgiveness amount. The lender is responsible for notifying the borrower of the date on which the borrower’s first loan payment is due and must continue to service the loan. The borrower must repay the remaining loan balance by the maturity date of the PPP loan (either two or five years
Although much of the guidance speaks directly to lenders and not borrowers, it does provide important insights on how EIDL advances will be recovered in the loan forgiveness process. If your company received an EIDL advance and is seeking PPP loan forgiveness, it is important to consult with a qualified advisor to assess your situation. If you have questions about the information outlined above or need assistance with an accounting or tax issue, JLK Rosenberger can help. For additional information, call us at 949-860-9895 or click here to contact us. We look forward to speaking with you soon.