PPP Forgiveness Timeline: What Lenders Need to Know

Mary Ellen Biery
May 21, 2020
Read Time: min

Lenders who worked excessive hours to help small businesses access Paycheck Protection Program (PPP) loans are now scrambling to incorporate the new SBA Form 3508 PPP Loan Forgiveness Application into their processes.

The PPP forgiveness process is a major concern among community financial institutions. Indeed, more than 1,000 community banks tuned in for the Independent Community Bankers of America’s (ICBA) webinar Wednesday on the PPP loan forgiveness, and 44% of those polled during the webinar said their bank does not have the resources to assist PPP borrowers as they complete the just-released forgiveness application. Hundreds of financial institutions have joined Abrigo for near-daily live overviews of the company’s solution for PPP forgiveness and administration, indicating they are eager to learn more about tackling the 11-page Form 3508, which Karen Thomas, ICBA’s Senior Executive Vice President of Government Relations and Public Policy, said “reminds everyone of the IRS.”

PPP forgiveness will be more spread out vs. funding rush

But there’s a major difference between the PPP forgiveness and administration phase and the PPP origination process: Lenders shouldn’t face the same compressed timeframe they did when they raced to access finite funding – especially in round one of the PPP.

Borrowers can begin applying for loan forgiveness eight weeks from the date they receive the loan proceeds. Given that PPP applications opened on April 3, that means the very earliest borrowers could apply would be May 29 – assuming the loans were approved and funded the same day. Lenders seeking to ask the SBA to purchase forgiven amounts in advance are allowed to do so at the end of the seventh week of the covered period, which would be May 22, assuming loans were disbursed the day the program launched. The SBA hasn’t formally explained that process yet, so it’s unclear whether lenders will be taking that approach.

In addition, many banks and credit unions got a slow start to PPP loan disbursements, according to published reports at the time. Some waited for the SBA to issue a promissory note or guidance about what loan notes issued for PPP loans should include. Others sought guidance on other aspects of the program before closing loans and disbursing funds.

That means many borrowers didn’t get funds from PPP loans until long after April 3. Assuming a loan was disbursed on April 17, the earliest a borrower could apply for forgiveness would be mid-June. In addition, lawmakers are considering expanding the covered period for PPP expenses to as long as 24 weeks, which would undoubtedly extend the time frame for when many borrowers will begin applying for forgiveness.

In the meantime, lenders can focus on the following answers about a few important dates that are known at this point and on helping borrowers understand what documents and receipts will be required to support their applications when they are finally due.

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Key PPP forgiveness dates for lenders

When do lenders file the initial Form 1502?  Lenders are required to electronically upload the initial SBA Form 1502 reporting information by the later of: (1) May 29, 2020, or (2) 10 calendar days after disbursement or cancellation of the PPP loan, according to an interim final rule published May 20. After submitting the initial 1502 report, lenders must submit PPP loan information on monthly 1502 reports. Once SBA makes a PPP forgiveness purchase, if no loan balance remains, the lender will need to report loan as paid in full on the next monthly 1502 report. If a loan balance remains, the lender will report any reduction in the loan balance on the next 1502 report and service the remaining balance.

When is the latest a borrower can apply for forgiveness? Is there a deadline for applying for forgiveness/using the Form 3508? The SBA has not provided guidance on a deadline, but Form 3508 lists an expiration date of 10/31/20. 

When does a borrower’s eight-week covered period begin? The SBA/Treasury’s FAQs published May 13 say the eight-week period for covered expenses begins on the date the lender makes the first disbursement of the PPP loan to the borrower. However, the Form 3508 Loan Forgiveness Application clarified that borrowers can elect to calculate eligible payroll costs using an “alternative payroll covered period”:

“Borrowers with a bi-weekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the ‘Alternative Payroll Covered Period’). For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.”

The application notes that borrowers electing to use the alternative period must apply it whenever the application refers to “the Covered Period or the Alternative Payroll Covered Period.” However, in places where the application refers to “the Covered Period” only, borrowers must apply the eight-week period beginning on the disbursement date. An example of this is in the section on nonpayroll costs. The application says eligible non-payroll costs “must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period." 

How long does the lender have to make a decision on the forgiveness application (to process the 3508)? The Coronavirus Aid, Relief, and Economic Security (CARES) Act says lenders have 60 days: “Not later than 60 days after the date on which a lender receives an application for loan forgiveness under this section from an eligible recipient, the lender shall issue a decision on the loan application.”   

Will the SBA also have to approve the application and if so, how long does it take? If the lender determines that the borrower is entitled to forgiveness, whether in full or in part, the lender must request payment from the SBA at the same time it issues its decision on forgiveness, according to the SBA's interim final rule. Then, the SBA will – subject to any review of the loan or the application – repay the appropriate forgiveness amount to the lender, plus any accrued interest within 90 days after the lender submits the decision. 

About the Author

Mary Ellen Biery

Mary Ellen Biery is a Senior Writer and Content Specialist at Abrigo.

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Abrigo is a leading technology provider of compliance, credit risk, and lending solutions that community financial institutions use to manage risk and drive growth. Our software automates key processes — from anti-money laundering to fraud detection to lending solutions — empowering our customers by addressing their Enterprise Risk Management needs.

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