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The clock is ticking for business owners who borrowed money under the Paycheck Protection Program in 2020 to apply for loan forgiveness.

Borrowers entered a 10-month loan deferment period at the end of their payroll coverage. Once deferment ends, borrowers will have to start making payments on the loan, which will carry a 1 percent interest rate.

Borrowers have the entire length of the deferment to apply for forgiveness, though banking professionals who helped process the loans, and the Small Business Administration which oversaw the program, say borrowers should not wait.

PPP loans were designed to help business owners pay employee wages during the COVID-19 pandemic and avoid as many layoffs as possible. The money could also be used for expenses including rent and utilities, but at least 60 percent of the loan had to be spent on payroll in order to qualify for full forgiveness. 

Borrowers had the option to utilize payroll coverage for employee wages over eight or 24 weeks. There were two rounds of loan disbursements before the program ended June 1. Many business owners who used payroll coverage early, during the first round of the program, will reach their 10th month of deferment sometime in July.

Christopher Chavez, regional communications director for the SBA’s Region VIII (Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming), encourages borrowers to apply for loan forgiveness as soon as possible. He estimates more than 90 percent of businesses that apply will receive “total forgiveness.”

“I certainly wouldn’t want to hold on to a loan like this on my books for long-term, especially if it’s forgivable, 100 percent forgivable,” Chavez said. “I would try and move on and get that done this summer.”

SIMPLER MEANS QUICKER

The SBA found ways to eliminate paperwork to speed up the loan forgiveness process.

For example, those with PPP loans over $2 million no longer have to submit the Loan Necessity Questionnaire (forms 3509 and 3510), a change the SBA says should shorten processing times for loans that size. The SBA is continuing to look for ways to simplify the forgiveness process even more.

The Business Journal spoke to several bankers who reported that forgiveness applications for loans under $150,000 were approved faster than loans in other size categories by using the simplified one-page 3508S form.

More than 173,000 of the roughly 200,000 PPP loans distributed to Coloradans were under $150,000.

Brandon Eldridge, Downtown branch manager for Vectra Bank Colorado, said previous iterations of the PPP loan requirements were “truly a moving target.” There was confusion over which line items could be forgiven and which could not, and the revised form 3508S solved many of those problems.

“The majority of the loans out there were for less than $150,000,” Eldridge said. “Those loans are all streamlined so that’s not requiring any supporting documentation. It’s a one-page application and generally speaking, once the bank sets it out and approves it on our end, the SBA is giving us approvals back usually within seven to 10 days.”

The SBA is considering whether to use a simplified, single-page forgiveness application for loans up to $350,000 or even up to $2 million, which could streamline the process for another 20,000 Colorado borrowers.

SMOOTHER, STILL BUMPY

In 2020, the SBA struggled to meet its 90-day turnaround goal for issuing PPP loan forgiveness decisions.

A July 13 statement from the SBA Colorado District Office said it “significantly reduced and nearly eliminated any backlog of PPP First Round loan forgiveness requests in the ‘over 30 days’ category.”

Chavez said he believes most loans will have a turnaround time of less than a month.

Damian Eddy, a relationship banker for First Western Trust, said wait times for forgiveness have varied from a few weeks to six months.

First Western Trust had to do a lot of work to process the first round of forgiveness applications. Eddy said the process is moving faster today than late last year, and credits a new online portal for borrowers they outsourced for easing the workload.

“We found this online portal for this go-round just because it was too labor-intensive a process for us as a bank,” Eddy said.

He said the loans taking the longest to forgive “mostly involved questions around eligibility issues for the funds in the first place, mostly stemming from the rate of changes and the rules surrounding the plan when it was first rolled out a little over a year ago.”

Eddy said the one-page form did speed up the forgiveness application process, but said there had initially been ambiguity surrounding PPP loan forgiveness.

“The biggest challenge that I’ve had in the program overall is just the SBA’s requests for additional information are not always clear,” Eddy said. “And it sometimes takes a little while to get through to someone to clarify what they’re looking for.”

Vice President of Commercial Lending at ANB Bank Scott McBride said being a smaller organization helped them implement changes quickly when the PPP loan program was announced in March last year.

“We had to implement a whole new process because this is a loan program that had never existed before,” McBride said.

He said, “It was a bit bumpy at first, but I think after that,” his bank was able to develop a process to make loan forgiveness a smoother operation, which included more one-on-one time with borrowers to answer their questions and update them quickly by email or phone when changes were announced.

McBride said the time his organization put into planning paid off during the forgiveness application phase of the PPP loan process.

“When we began accepting forgiveness applications later last year, it was a smooth process for our customers and we began doing our part of it quickly,” he said. “Once we’ve reviewed and approved this application and we send it to the SBA, we’re at their mercy.”

His bank submitted all first draw forgiveness applications and 95 percent of them have been forgiven. They began submitting second draw forgiveness applications in April. The SBA began approving them in June. He has noticed quicker turnaround from the SBA since the program closed for new borrowers.

“I think the SBA was focusing on new second draw originations as opposed to forgiveness applications,” McBride said. “Since the program expired [at the end of] May, the process is moving along more smoothly. We now are seeing forgiveness turnaround times in the one- to two-week range.”

STAYING ON TOP

Time is running out but there is still a large portion of borrowers who have not applied for forgiveness. The latest available report from the SBA said 1.7 million borrowers out of 5.2 million nationwide have not turned in applications to forgive PPP loans from 2020, let alone 2021.

Eddy has found borrowers who are waiting until the last minute because of how busy they are.

“I have seen some borrowers say that it’s just not their primary priority,” Eddy said. “They’ve got time. They’ve got no payments or anything, so it’s just not their primary concern. They’re busy working on other things.”

Eldridge said borrowers should apply for forgiveness now no matter how favorable the loan terms may be.

“Now, the interest rates are incredibly low and the payments are stretched out over five years, and so effectively, it’s a pretty good deal,” Eldridge said. “But I would encourage people to really look at their loan that they got, make sure that they’re applying for the forgiveness and talking to their bank.”

Chavez believes some borrowers are holding out to see whether the terms of the PPP loans evolve, since rules for forgiveness have changed and expanded several times since the program began.

“Some businesses, they may be holding out thinking that there’s going to be a better deal down the road, that more of a loan will be forgiven, whatever,” Chavez said. “We don’t know if that’s going to happen. That would be up to Congress to make some of those decisions and that could happen or could not happen.”

Chavez wants borrowers to request forgiveness right away. He said, “Now’s the time to do it. Don’t wait, because we don’t know what’s going to happen with the program six months from now or a year from now.”

Other loan programs are still open. The Economic Injury Disaster Loan program runs through Dec. 31. Chavez said more programs are available as well and the SBA wants to close out PPP loan forgiveness as soon as possible to devote resources to those other programs.

Eddy warns borrowers the SBA still technically gives itself 90 days to decide on an application. Decisions have come back faster lately, but he recommends borrowers apply for forgiveness with at least 90 days left of deferment to avoid having to start making loan payments before forgiveness can kick in.

“One thing we’ve been doing is we’ve been tracking loan dates versus forgiveness applications,” Eddy said. “And if we’ve got a client who’s getting close to the end of deferment, we start reaching out.” 

Justin Tate is a graduate of Metropolitan State University of Denver. He got his start as a staff writer for the Balch Springs Sentinel in 2011 and has covered boxing for Bleacher Report and Fox News. He joined CPH in 2021.