Mark Pestronk
Q: In your Jan. 25 column, "Digging deeper into the new round of PPP," you stated that it was not necessary to apply for forgiveness of our first PPP loan before getting our second one. So what's the deadline for applying for forgiveness of our first loan? I can't get a straight answer from my bank, my certified public accountant (CPA) or the Small Business Administration's (SBA) regional office. Have I already missed the deadline? Also, if our loan hasn't been forgiven yet, when do we have to start repaying it, and what are the repayment terms?
A: I can certainly understand your confusion. The internet is full of incorrect advice, such as this, which I found on a CPA's website: "Businesses must apply for PPP loan forgiveness within 10 months after the conclusion of their covered period. Failure to do so within the time frame will result in your business being ineligible for any forgiveness."
Actually, the deadline for submitting a forgiveness application is much further in the future. Borrowers may submit a loan-forgiveness application any time before the maturity date of the loan, which is either two or five years from the loan's origination, depending on the borrower's bank agreement or promissory note.
The first PPP loans starting last spring have a two-year term, but loans made after mid-June have a five-year term, as do the second PPP loans that you can apply for now. So, if you got a PPP loan last May 15, you don't have to apply for forgiveness for another 16 months or so.
However, there is another part of the PPP rules that you have to keep in mind: Loan payments are deferred only until 10 months after the last day of each borrower's loan forgiveness covered period. The term "forgiveness period" means, at your option, either the eight-week period or the 24-week period beginning on the day you received your loan.
For example, if you received your loan on May 15, your 24-week "covered period" ended (as I calculate it) on Oct. 30, so your loan payments are deferred until 10 months after that, which would be Aug. 30.
But what's the point of waiting to apply for forgiveness until after you have to start making payments? There is no point, and there is an advantage to applying before you have to start making loan payments.
The latest Q&A from the SBA provides that, as long as you submit your forgiveness application within 10 months after the end of its loan-forgiveness covered period, you will not have to make any payments of principal or interest until the SBA 1) makes a determination on your forgiveness application and 2) remits the determined forgiveness amount to the PPP lender. That will take months, during which you won't have to pay anything.
If you miss the 10-month cutoff, or if your loan is not forgiven in whole or in part, the repayment terms are monthly payments of principal plus 1% noncompounded interest that has accrued from the date of the loan.