Danielle O’Connor’s Paycheck Protection Program Loan did its job.
The Shuffle co-owner in Tampa Heights had to lay off everything but herself and two other employees – her co-owner and their boss – during the coronavirus pandemic. But the loan guaranteed by the federal government in May, valued at $ 52,000, helped the bar and shuffleboard stay afloat and rehire workers. Now it’s almost a return to full strength even though the business is not what it used to be.
Seven months later, the loan money was gone. O’Connor could go ahead and ask for a federal pardon. But on the advice of her lender, she stuck it out. The government’s forgiveness rules are about to change.
“I don’t think they can say that we are not forgiven,” she said. “But if there is a deadline and we miss it, then it’s all over. I can’t imagine how many companies are in this position, who don’t even know what they’re doing with it at all, having no advice from anyone.
Congress this week reached a tentative deal on a new stimulus package that extends the emergency lending program, clarifying some of its rules while increasing spending that can be waived. If President Trump signs it, the bill will allocate an additional $ 284 billion in loans and allow some of the hardest hit small businesses to apply for a second loan.
The new bill also dramatically simplifies the pardon process for companies like Shuffle that initially received less than $ 150,000, giving them some insight into an issue that has been on their minds for weeks: how and when to seek relief. loans that have helped save their livelihoods.
“It was a big blow to hit that number because it makes it easier for the banks, for the customers, for everyone,” said Chris Stewart, president of the Tampa Bay market for Centennial Bank. “This new bill will speed up this new process for those waiting on the sidelines.”
Even so, the process of canceling old loans – and the potential processing of millions of additional new loans – will likely be a monumental challenge for lenders and borrowers in the New Year.
“A lot of people are bracing for what’s going to happen in the next couple of months, which is an avalanche of pardon requests, and how quickly can they get there,” said Don Weinbren, an attorney for Trenam Law in Tampa, who worked on the borrower side of the Paycheck Protection Program loans. “From the borrower’s perspective, this will be a big deal.
To understand why the forgiveness process has been so uncertain, it helps to go back to March.
The Paycheque Protection Program was designed to provide lots of money very quickly to many businesses. The distribution mechanism – banks with already small business clients – was already in place. The government paid banks a flat fee to process applications quickly without performing their normal and rigorous background and credit checks. If lenders and borrowers followed the spending rules, the government would fully support the loans and the forgiveness was virtually guaranteed.
It happened so quickly that once it got started, problems started to appear. The Small Business Administration has regularly changed the rules and deadlines, developed explanations and offered advice on complications that have arisen along the way, for example for businesses that have been sold or gone bankrupt.
“The people who write these things are neither borrowers nor lenders,” Weinbren said. “They are government bureaucrats. They don’t know what they’re doing. I don’t blame them. It is the nature of the beast.
“You’re trying to put in place a program designed to stimulate the economy, but you don’t really know what you’re doing. So you make a lot of mistakes. And they really did. That’s why we have 20 or 30 “provisional final rules”, because they had to continue to correct themselves. “
The banks gave applicants the same advice: follow the instructions on your application. Keep meticulous records. Open a separate account for the loan money so as not to mix up how it is spent. Return the money you don’t need. All of this was designed to facilitate the process of eventual forgiveness.
This process will not be equal for all borrowers, however.
Start with the deadline. Depending on when a business received a loan, it was required to spend its funds over an eight-week or 24-week period, after which it had up to an additional 10 months to apologize. Most businesses are now in this window, but for those that received loans at the end of the summer, the forgiveness period could extend until the end of 2021. (After that, the loan carries 1% interest and matures in two to five years.)
In October, the Small Business Administration informed companies that raised at least $ 2 million that they should start compiling files for an audit. In Florida, nearly 1,300 companies received that much. the Tampa Bay weather and its related companies received a loan of $ 8.5 million in April.
Around the same time, the government simplified its rules for canceling loans under $ 50,000, which in Florida accounted for over 73% of all loans.
“There are no calculations involved,” said Heidi A’Hara, tax manager at Spoor Bunch Franz in St. Petersburg. “Basically, they just have to sign a bunch of things that have happened, confirm them and send them.”
Under the new bill, this process would also apply to loans between $ 50,000 and $ 150,000, or 16.5% of loans in Florida.
“You think of the resource savings, on the business side, and it’s just a win for everyone,” said Stewart. “If it’s just a process where we certify that they’ve used the money appropriately, and it’s forgiven, boy, that will really make it easier.”
Some banks decided they didn’t want to be responsible for the loans, which are guaranteed by the federal government but carry low interest rates. Some sold the loans to secondary lenders, partly for bonus income and partly to avoid getting involved in the complicated cancellation process.
Centennial Bank didn’t sell its loans, Stewart said, although he added, “You don’t really want a loan on the books at 1%.”
Centennial has been processing forgiveness requests for a few weeks and some loans have already been forgiven. If the new relief bill becomes law, it could encourage many more companies to pass their demands.
“We’ll see a bump,” said Stewart. “But I don’t think it’s going to be something that will put any of the banks aside. We were working 24/7 on the first round when we got loans approved for these people. This did not happen on the forgiveness side.
What the government verification process will look like is yet to be guessed. More than 29,000 companies have been approved for at least $ 2 million, the threshold for an automatic audit. This represents less than 1% of all Paycheck Protection Program loans. But it was the companies that received significantly less, which might struggle to keep records and have more to worry about, Weinbren said.
“A lot of small business owners are not good record keepers at the best of times,” he said. “It could come back to haunt them.
“The government’s workforce is so limited that I don’t know how many audits they will really be able to do, when you think about how many loans there are,” he added. “On the other hand, the SBA has been so focused on the subject because of some of these unanswered questions that, unless the administration tells them something, I would expect them to try. probably auditing as many people as possible. they can. “
Throughout the paycheck protection program process, the government left some questions unanswered, which created pressing problems for borrowers.
For example, the original Coronavirus Aid, Relief and Economic Stimulus (CARES) law did not specify that loans spent on appropriate expenses would be exempt from tax. As a result, the Internal Revenue Service declared these loans as taxable income for 2020. The new bill rectifies this problem, alleviating potential tax headaches for beneficiaries next spring.
“It was never the intention of the loan,” said A’Hara of Spoor Bunch Franz.
The new bill also doesn’t go into detail on how the forgiveness process might shape businesses seeking a second loan repayment.
“You almost wish we could have had all the loans available and all canceled before we started this second round, but that’s not life,” said Stewart of Centennial Bank. “These people need the money.”
For now, entities that have received more than $ 150,000 are prepared for a rigorous forgiveness process.
American Stage Theater Company in St. Petersburg received $ 314,600. Artistic director Stephanie Gularte said that getting that money in the first place was a lot less complex than the process of asking for forgiveness. On the advice of its bank, the company is waiting for more answers.
“There were still too many moving parts,” she said. “They got the information for the app so quickly and moved everything so quickly which was great. What followed after that was such a different message of what they want to get your loan canceled – what was counted, what was not counted, what time period we were talking about.
Gularte said the company is moving forward with its own annual audit, so it should be prepared if the government suddenly calls.
“We are not concerned about whether or not we qualify,” she said. “Are we going to be audited? If we do, we’ll be ready for it.
O’Connor, the owner of Shuffle, isn’t too worried either, and neither is her lender.
“They just said save us a headache until we know we have to,” she said. “I’m just not going to work very hard to do it if I don’t have to.”
Until then, she is keeping an eye on the new stimulus package. As a restaurant, Shuffle may receive additional benefits under the Paycheck Protection Program 2nd Loan Cycle.
“We will definitely look for more funding,” she said. “If there is any available, we will take it.” “