SBA loan cancellation causes relief, but also confusion over timing and rules
Philadelphia small business owners are relieved to learn that their small business loans of up to $ 50,000 could be written off.
But no one is rushing to lenders to ask for forgiveness yet.
First, milder conditions may be on the horizon.
“It was rumored that loans of up to $ 150,000 would be canceled,” said Maura Shenker, director of the Small Business Development Center at Temple University, which helps business owners through the borrowing process. and reimbursement.
Second, the request for forgiveness has its own complex set of rules. Paycheck Protection Program loans are made by lenders but guaranteed by the SBA. They are low interest rate (1% per annum) and fully forgivable if the companies meet certain conditions.
Banks, online lenders, and other financial institutions that handed out SBA money “won’t forgive loans unless everything goes well.” If you spend all your money on payroll, you’re golden, ”she said.
If the business owners spent the loan differently, the paperwork will likely be heavy.
“Each bank demanded ground rules from the SBA as well as its own restrictions,” Shenker said. “The risk is on the bank, even if that’s not what the government says. The SBA has the ultimate choice to forgive or not to forgive. “
In March, Congress passed the CARES Act, which provided more than $ 2 trillion in emergency aid. One of the programs was the SBA-administered Paycheque Loan Recoverable Loan Protection Program.
In the form, borrowers must certify that the funds were used for qualifying expenses and were spent at least 60% on payroll and other limits, said Wilfrid Baptiste, director of Financial Blind Spot, which advises them. clients on PPP.
But “we tell everyone to wait and not apply yet. Anyone who doesn’t have their papers together, the SBA may not accept. The bank will then demand reimbursement from the business owners, ”Shenker said.
“We want to know exactly what the rules are and give people the best possible chance. “
Bank statements and canceled checks may be sufficient.
From a practical standpoint, “the business cannot use the money for inventory, supplies, or other operating expenses,” said David Zalles, CPA at Blue Bell.
Two-thirds of business loans in Philadelphia were for $ 50,000 or less. However, that is only 12% of the total amount loaned, as the loans amounted to as much as $ 10 million, according to SBA data.
Two business owners in Philadelphia who received PPP loans under $ 50,000 were Rudiger “Rudy” Ellis, co-founder of Switchboard, a start-up in Center City, and Tiffanie Stanard, founder of Stimulus, founded in. 2017 as a search engine for procurement. chains of sellers. They also received $ 50,000 Google cash rewards announced earlier this month.
“We got a small PPP loan of $ 43,000 through the Enterprise Center,” Stanard said. His company is raising funds with Gabriel Investments, Apartment mogul David Adelman, and some angel investors.
If the SBA rules stay the same, “forgiveness should be pretty quick. These small loans under $ 50,000 really should be automatically forgiven,” Stanard said. A graduate of Little Flower High School, Stanard, 34, is a member of the board of directors of Leaders of startups in Philadelphia and the Philadelphia Alliance for Capital and Technology.
Rudy Ellis, co-founder of Switchboard.Live, a streaming platform, also requested a PPP loan of less than $ 50,000. Switchboard customers use software to deliver content on different channels such as Facebook and Youtube. A native of Philadelphia, he graduated from George Washington High School and then Howard University, before pursuing a career in Silicon Valley and at Electronic Arts.
He, too, used the PPP loan as part of a larger effort to keep growth on track. Switchboard is targeting revenue of $ 500,000 for 2020 and wants to double that figure by 2021.
“We took out a PPP loan of $ 43,000 through Silicon Valley Bank,” Ellis said. Ben Franklin Partners has also invested in Switchboard and to date the company has raised $ 2.1 million in investor funds.
“The forgiveness limit should really be increased, otherwise it just creates more work for the SBA,” he said.
On Monday, October 19, the Greater Philadelphia Chamber of Commerce will host a virtual webinar on P3 loan cancellation with lenders and borrowers to better understand how their business can qualify.
To register for the webinar, which will begin at 11:00 a.m., visit the chamber’s website at https://apps.chamberphl.com/events.
As part of the Small Business for Women Virtual Workshop Series, SCORE Bucks County collaborates with the Small business management and the TriCounty and the Chester and Delaware County chapters of SCORE to facilitate a webinar, “The Recovery Continues – Updates on SBA Programs and Services – Economic Damage” which will be offered on December 16.
In a report dated October 1, the Government Accountability Office posted a scathing review on the SBA loan program. On September 10, 2020, Justice Department officials announced that they had charged 57 people with PPP fraud. These cases involve alleged attempts to steal more than $ 175 million from PPP with actual losses to the federal government of over $ 70 million, according to testimony from William B. Shear, director of financial markets and investment. community in GAO.
There are two levels of discount: first, the bank or lender must accept the request for the discount, and then the SBA accepts or declines. But it is still unclear to what extent banks are responsible for verifying information or relying on borrowers’ descriptions of their finances.