If you applied for a loan through the Paycheck Protection Program (PPP), you may be eager to see if your small business qualifies for loan forgiveness. The program, which encourages companies to keep their employees on the payroll, has offered forgivable loans up to $10 million. Today, the American Institute of CPAs…Read more...
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Experts say the process of getting billions of dollars in PPP loans forgiven is mired in confusion. Here's how fintechs are helping — and nabbing new customers.
As the application period for the paycheck-protection program for small businesses closes, attention is shifting to...As the application period for the paycheck-protection program for small businesses closes, attention is shifting to what needs to be done for the loans to be forgiven. Insiders said the loan forgiveness process is far more complex than applying was, including a significant amount of documents to be filed by the lender. The issue is compounded by a lack of clear guidance from regulators about what is needed, including several rule revisions in recent months. Fintechs such as BlueVine, Plaid, and PayPal have all stepped up to help streamline the process, as was the case during application. Sign up here for our Wall Street Insider newsletter. The launch of the paycheck-protection program for small businesses in April was anything but easy. Standing up a multi-billion dollar program from scratch in the midst of a pandemic provided its fair share of hiccups. From the first round of funding running out in just two weeks, to publicly traded companies receiving money ahead of small business, applying for a loan wasn't seamless. But as the application period comes to a close at the end of June, a more challenging issue has arisen: ensuring the loans are forgiven. "There's just a lot of complexity, a multiple of the complexity, on the forgiveness side as compared to the origination side," Peter Davis, EY Americas financial services advisory leader, told Business Insider. He added that the industry put forward a "tremendous amount of effort to get the program stood up, and that was the easy part. The forgiveness is now definitively the hard part." On the surface, the concept of loan forgiveness might seem fairly straightforward. In order to ensure a loan is forgiven by the government, borrowers have 24 weeks — an extension of the eight weeks originally offered — after receiving a loan to provide lenders proof the funds were spent appropriately. One main caveat is that at least 60% of the funds were spent on payroll. Lenders then send that information to the Small Business Administration, the government agency running the program. However, thanks to guidelines that have continued to shift, the significant amount of paperwork required and lack of clarity of who is to blame if the information isn't filed properly, the entire process will be much more cumbersome than applying was, insiders said. Read more: How big banks decided the futures of America's small business: The inside story of how $349 billion in government cash was doled out in just 12 days, leaving thousands of entrepreneurs without relief During the initial wave of PPP loans, incumbent banks struggled to process large volumes of loan applications, leaving many small businesses unable to access funds. Fintechs like PayPal and Square then became approved SBA lenders, giving small businesses another option when it came to applying for the second wave of PPP funding. Once again fintechs are looking to step up to the plate to help lenders and borrowers manage an intricate process. "As people started getting closer to actually having to operationalize forgiveness, it became immediately apparent that there were going to be some real problems," John Pitts, head of policy at Plaid, told Business Insider. "I would view the fact that there are still so many changes happening right now as good evidence of the underlying structural problems," Pitts said regarding the rule revisions. "A lot of those rely around the complexity and difficulty of meeting that complexity with the appropriate data." Forgiveness is full of complications One of the biggest challenges navigating the program has been the constant updates, insiders said. Since the start of the program, 19 interim final rules have been filed and 48 FAQs released by the SBA, according to Davis, who added that EY has built out a platform to help both lenders and borrowers. The most recent update, which was published June 19, likely won't be the last. Davis said more changes can be expected in the months ahead. As a result, the paperwork one borrower submits for forgiveness might end up being entirely different from another who submits it a few weeks later. While borrowers have 24 weeks from the time they received the funds to file for forgiveness, insiders said submissions should pick up in the coming weeks as the PPP loan application process officially closes at the end of the month. And while questions remain about loans under a certain threshold being automatically forgiven, everyone is expected to apply for forgiveness lest they have to pay back the loan with interest, albeit only at a 1% interest rate. But even as forgiveness filings ramp up, other concur much remains up in the air. "With the latest guidance by the SBA, we are pleased that they are working to make the PPP loan forgiveness application as simple as possible for borrowers, but there are still gaps when it comes to guidance for lenders/servicers to operationalize the forgiveness processes," Doug Bland, PayPal's senior vice president of global credit, told Business Insider via email. Uncertainty around what is, or isn't, needed when applying is also compounded by not having the ability to make changes after the submission is made, Rohit Arora, CEO and cofounder of online small business lender Biz2Credit, told Business Insider. Not being able to revise what has been submitted is likely to further complicate things. The inability to add more documents after filing was a common problem that cropped up during the application process, and is likely to be an issue as submissions for forgiveness begin rolling in. "Once they've applied and they've done their documentation and then they want to go back, especially if they want to increase their forgiveness amount, that would be very tough," said Arora, whose company is rolling out a platform this week to help with filing for forgiveness. "Unwinding something like this is very tough." Digitally-savvy fintechs are trying to automate the forgiveness process While the small business lending process can typically be very manual, fintechs were able to leverage their tech to process PPP applications online, which became crucial in handling high volumes. And as the focus shifts to forgiveness, many are looking to do the same once again. Online bank for small businesses BlueVine, which was able to digitize application documents and automate the application review process, is working on an automated platform to help its customers secure forgiveness. "This laborious and complex process will be helped by fintech companies like BlueVine to create an easy-to-understand online application that makes the process faster, easier, and more efficient," Brad Brodigan, BlueVine's chief commercial officer, told Business Insider, "which is really important for small business owners who don't necessarily have a CPA or an accounting department." See more: Fintechs working with lenders and small businesses explain the pain points still plaguing the latest $320 billion round of PPP loans Buzzy data fintech Plaid, which is set to be acquired by Visa in a deal valued at $5.3 billion, has also been working on new products specifically to help small businesses get the appropriate payroll data in order, both for initial applications and forgiveness. PPP loan size depends on average monthly payroll expenses, so in the initial application small businesses needed to source payroll data. As a result, proving a majority of the funds were spent on paying employees is crucial to the entire forgiveness process. Plaid's Pitts said the fintech tried to simplify the PPP origination process as much as possible, limiting the number of data fields borrowers had to deal with. For forgiveness, it'll look to take the same approach. "What we are hearing is a desire for that same prioritization and ease of use in the forgiveness process as there was in the application process," Pitts said. "On forgiveness, you have a much more complicated job of actually tracking whether you appropriately spent the money in the appropriate period of time on qualified expenses," he added. "That takes what was already a hard data problem for a small business and makes it just exponentially harder." Small businesses are giving fintechs a shot, and fintechs are setting new table stakes The entire process has served as a way for fintechs to prove their value to small businesses they previously might not have dealt with. Fintechs and smaller community banks have shown they can offer the same services as incumbents. "People's relationship with their financial service provider is very sticky, and for very good reason," Pitts said. "Usually there is not a clearly compelling case to change that relationship." But the PPP process proved an opportunity for fintechs to win over small businesses that weren't prioritized by incumbent banks. "Many small businesses viewed fintech as an option they had to try," Pitts said. Roughly 90% of Kabbage's PPP loan applications and nearly 97% of BlueVine's have come from new customers. "I think it has really brought to the attention of small business owners, in particular, that their banks are really not providing them the level of service that they would need or expect," said Brodigan. And that's due to a few reasons, Brodigan said. Incumbent banks have, by nature, larger customer bases and serve a wide array of small businesses. Many rely on manual processes made more difficult with coronavirus-related branch closures. Fintech lenders like BlueVine and Kabbage, which target small businesses and operate fully online, were well-positioned to help small businesses who were left behind by incumbents. "Once you've demonstrated that level of performance to a broader audience that didn't necessarily think of themselves as a fintech customer," Pitts said. "I think you're going to start seeing the key features that were offered to them by fintechs as table stakes for their financial services going forward." Read more: A breakdown of how solo entrepreneurs, freelancers, and businesses that laid off staff can still get their PPP loans forgiven How business owners with PPP loans should restructure their payroll so they don't have to give a single cent back to the government Leaked memo shows Bank of America's talking points for staffers on how to handle the next round of PPP loans — and warns that funds likely won't meet 'extreme need and demand' SEE ALSO: CEOs at Stash and Chime say they're seeing record signups as fintechs race to set up ways for customers to get stimulus checks quickly SEE ALSO: Fintechs working with lenders and small businesses explain the pain points still plaguing the latest $320 billion round of PPP loans SEE ALSO: How big banks decided the futures of America's small businesses: The inside story of how $349 billion in government cash was doled out in just 12 days, leaving thousands of entrepreneurs without relief Join the conversation about this story » NOW WATCH: How waste is dealt with on the world's largest cruise ship
The decision to reveal who received a Paycheck Protection Program loan comes after weeks of backlash...The decision to reveal who received a Paycheck Protection Program loan comes after weeks of backlash over a lack of transparency.
The SBA released the application to have your PPP loan forgiven. Here's a breakdown of the long and complicated requirements.
Small business owners who applied for the Paycheck Protection Program (PPP) have a chance to have...Small business owners who applied for the Paycheck Protection Program (PPP) have a chance to have the loan forgiven by filling out the recently released Loan Forgiveness Application. Despite the new documentation, some business owners are in the dark about the process given the length of the application and stringent requirements. For one, borrowers will be ineligible for forgiveness on unspent capital — but the timing for spending it is more flexible. Make sure you document everything, including what you used to pay yourself alongside payroll information. Click here for more BI Prime stories. Last week, the Small Business Administration (SBA) and the Treasury released the Loan Forgiveness Application for the Paycheck Protection Program (PPP). Small business owners across the country who received funding from the SBA through the PPP were anxiously awaiting this documentation to get confirmation on important details surrounding loan forgiveness, especially borrowers who were funded in the first weeks of the program back in early April. The forgiveness application and its accompanying instructions came with quite a few unexpected developments for small business owners. The whole process is nothing less than a "ticking time bomb," according to Parker Conrad, CEO of payroll provider Rippling. "We had a tremendous amount of interest in the PPP loans, companies that were downloading the reports, that were applying for the PPP loans on Rippling," Conrad told Business Insider. "They were told there was a way to get this loan forgiven, and we'll get you some guidance later. And then the guidance comes out and says that in order to get the loan forgiven, you have to have already spent it, and I think a lot of people are saying that it's just not fair." Uncertainty still surrounds PPP forgiveness following the release of documentation Conrad said that due to the amount of uncertainty surrounding the process, many of his customers are uncomfortable spending their PPP funds without further and more specific guidance. Yet the application is clear that without having spent the capital, borrowers will be ineligible for forgiveness on at least a portion of the loan. Additionally, the length of the forgiveness application is likely to be a stumbling block for many small business owners, in Conrad's view. "The application is like a tax return. It's very long and complicated — it's not like the 1040EZ, it's like the 1040 long and hard," Conrad said. "For us, we're doing a lot of this for our clients, so it's a business opportunity for us, but at one point this was presented as a very simple loan application, and now it's become very complicated." Adding to that complication are a host of issues for which no answers exist as of yet. One example Conrad cites is the fact that the government expects borrowers to submit IRS Form 941, the Employer's Quarterly Federal Tax Return, as part of the forgiveness application, which many businesses will not have in their hands due to timing issues. "For most businesses, their 941 forms aren't available until after the end of the quarter, so the government is encouraging them to submit draft 941s," Conrad said. "But for any business that is doing this through a payroll company, there's no such thing as a draft 941 — the payroll company submits it electronically to the government after the end of the quarter and provides them an as-filed copy." In a press release that accompanied the release of the forgiveness documentation and instructions, the SBA noted that it will provide further regulations and guidance to assist borrowers "soon," but did not indicate a more precise timeline. So, with the loan forgiveness application in hand, what do PPP recipients know, and what's still left up in the air? Here's what legal and financial experts told Business Insider. One clear improvement: Flexibility is introduced For businesses that are starting to reach the end of the eight-week timeline for spending the proceeds from their PPP funds, or for businesses just beginning to allocate loan monies, the release of the forgiveness documentation did provide a bit of welcome flexibility on timing. In the original language of the PPP, borrowers had eight weeks beginning from the day they received funding — what the forgiveness application refers to as the "Covered Period" — to spend the money they received, whether or not this timeline was in compliance with their pay periods. Now, the program's "Alternative Payroll Covered Period" allows companies on a biweekly or more frequent payroll schedule to begin their Covered Period on the first day of their first pay period following receipt of the loan. Limits regarding workforce and pay decreases appear to have been set aside In the original terms of the CARES Act, borrowers were required to meet guidelines regarding rehiring a certain percentage of their workforce by June 30 and, separately, not reducing pay by more than 25%. "This application changed that," Johnny Wang, a St. Louis partner at the law firm Stinson LLP, told Business Insider. "Let's say that you let everyone go on February 15, you got your PPP loan and hired back half of your employees, and then the payroll period before June 30, you hired back the rest of your employees. Normally, that would have reduced your amount of loan forgiveness. This application seems to say that loan forgiveness reduction based on the FTE levels wouldn't occur." Wang said that the application sets out the same basic premises for pay reductions: As long as employees' pay is brought back up during the covered period, borrowers are not subject to loan forgiveness reduction. "Some of these changes could be as a result of nonessential businesses getting this PPP loan money and not then being able to spend the money because they weren't able to operate," Wang said. "Because of that, their expenses would be occurring toward the end of the eight-week period, and it would reduce their loan forgiveness amount without these accommodations." Owners must report payments made to themselves Owners are required on the forgiveness application to identify the total amount they've received from PPP funds. This stipulation was not previously alluded to in the program documentation, and Wang said he believes this is designed to control the potential misuse of funds. Owners who max out their compensation from PPP funds, taking the full $15,384 available (what $100,000 breaks down to for an eight-week period) will attract an audit and possibly other attention if they didn't receive compensation in 2019 or claimed significantly less in compensation last year than what they've assigned themselves. "This instruction is likely intended by SBA to relate to the certification of need by owners to ensure employee retention — not lining their own pockets," Wang said. When all else fails, create a paper trail With a great deal still left to be decided, and SBA guidance forthcoming that could change even that which has been determined to date, keeping plenty of accurate documentation of each dollar of PPP funds spent is the best strategy to maximize forgiveness, Nick Kolbenschlag, the cofounder and managing partner of the financial-services firm Crown Wealth Group in Charlotte, North Carolina, told Business Insider. "If you have a separate bank account, when you make a contribution to a 401(k) plan, move that exact amount over so that you have that perfect flow. Then, print out the transaction from the bank account, print out the transaction from your retirement plan provider. Capture each of those steps as they are cleared," he said. "It might be overkill, but it might also make it really easy on you when the time comes."SEE ALSO: Amazon sellers share the 3 strategies they used to ramp up shipping and customer service during the pandemic NOW READ: The legal and tax implications of taking your company remote permanently Join the conversation about this story » NOW WATCH: What makes 'Parasite' so shocking is the twist that happens in a 10-minute sequence