SBA Lending in a Pandemic

Small Business Administration (SBA) Loans for the Pandemic

The point of the Paycheck Protection Program is to keep your employees on payroll and business supported during the pandemic. The money we are lending, backed by the SBA, is intended to be no- or low-cost to you if you follow the SBA’s rules. Ultimately, you, as borrower, and we, as lender, answer to the SBA and must abide by their rules.

To have your loan forgiven, it is important that you closely follow the parameters outlined by the SBA which we have summarized below.

It is also important that you honor the spirit of the law: To meet the urgent needs of businesses struggling financially as a result of the pandemic.

The entire amount of this loan, plus accrued interest, has the potential to be forgiven. Here is a general summary of how that process works and the steps you must take to be eligible based on information that SBA has provided to date. Please read the entirety of this document and consult your financial and/or legal advisor(s) if necessary so you are absolutely clear about the forgiveness parameters.

Download this information in a PDF.

Read these suggestions for documentation to be eligible for forgiveness.

Use this helpful tool to track how you spend your PPP funds.

Join our webinars on PPP forgiveness.

View a recorded webinar on forgiveness from May 1, 2020.

The Basics

  • Both principal and accrued interest can be eligible for forgiveness if funds are used for the allowed purposes. The actual amount of the forgiveness will depend, in part, on your total amount of payroll costs and other allowable purposes.
    • These are the forgivable purposes. If you spend loan proceeds in these ways and at these ratios, you may be eligible for forgiveness.
  • At least 75% of proceeds: Payroll Costs
    • Based on full employment levels as of Feb. 15, 2020 at no less than 75 percent of 2019 annualized wages or seasonal calculation (up to $100,000 per person)
  • No more than 25% of proceeds: Other Covered Costs
    • Mortgage Interest – For mortgage agreement in place before Feb. 15, 2020
    • Rent – On leases dated before Feb. 15, 2020
    • Utilities – Under service agreements dated before Feb. 15, 2020
  • Funds must be spent within an eight-week period starting the day you receive them. In other words, if you get the money on April 17, it can cover payroll and essential bills until June 12.
    • The language in the bill doesn't give a clear enough indication of whether it's based on cash- or accrual-based accounting. Cash-based is the more conservative interpretation for forgiveness eligibility. This means you would ask forgiveness for funds actually spent during this eight-week period, not for payroll and services accrued but not paid during this period. In other words, you would ask forgiveness for payroll or rent paid by June 30, but not for payroll or rent paid July 1 for services rendered in June.
    • If you ask forgiveness based on accrual-based accounting, you should be able to show the expense was incurred during the eight-week period and settled in cash shortly after the conclusion of the eight-week period. As an example, let’s assume payroll occurs every Friday and the workweek runs Thursday to Wednesday. Since June 30 is on a Tuesday, it is possible that you would have 6  days (Thursday, June 25 to Tuesday, June 30)  of accrued but unpaid payroll on your forgiveness application as of June 30.  
  • By no later than June 30, 2020, restoration of full-employment and salary levels for any changes made between Feb. 15, 2020 and April 26, 2020 will qualify a borrower to determine loan forgiveness without regard to a reduction in FTEs.
    • Full restoration of FTEs does not necessarily mean they must be filled by the same employees. New hires will be allowed.
    • In determining the rate of forgiveness reduction based on FTEs, the SBA will allow borrowers to choose which period to use as a baseline for employment level comparisons: Feb. 15 to June 30, 2019, or Jan. 1 to Feb 29, 2020.
  • You will make your forgiveness request to Pinnacle. You will include verification documents described later in this document.
  • Forgiveness can be reduced in part or completely depending on the use of funds, timing of that use and employee retention.
  • You do not and will not get more than one loan under the PPP between February 15, 2020 and December 31, 2020.
  • Intentional misuse of PPP funds will lead to required repayment in full and additional liability, possibly including criminal charges for fraud. The SBA will also have recourse against owners, shareholders, members and partners of that business.

If you meet these requirements, you should be eligible for full or partial forgiveness. Any use of funds for purposes other than those described above—or in different ratios than described above—will make you ineligible. You will then owe part or all of the loan proceeds, plus interest, as you would any other loan.

Certification of Need

At the time of application, all borrowers certified that that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." The SBA may investigate and require proof of need as part of the forgiveness process. This is an attempt to shape the letter of the law to better reflect its intent, which is to provide relief for small businesses so they may keep staff on payroll and pay essential bills during the crisis. 

  • For Loans Under $2 Million
    • The SBA will assume this certification was made in good faith and the borrower did not have ready access to other sources of capital at the time of application.
    • In other words, small and mid-size borrowers should not worry about getting into trouble over accepting PPP funds and should feel free to spend them for allowable purposes.
    • However, documentation requirements remain intact and these loans are subject to review by the SBA.

  • For Loans Over $2 Million
    • All loans over $2 million will be subject to a full review by the SBA to ensure this certification was made in good faith.
    • Borrowers should take time to carefully consider the certifications made at the time of application and determine the best path forward for their company. 
    • Borrowers who are found to have had ready access to capital, including many publicly traded companies, will be asked to pay back the loan, plus any accrued interest, immediately.
    • If this is done, the matter will be closed and the SBA will not pursue administrative enforcement or refer the borrower to other governmental agencies.
    • If this is not done, the SBA may take additional action, including possible referral for criminal proceedings.

The details of the review process for loans over $2 million have not yet been made clear. As more information is made available, we will share it with you. For now, you can review the SBA’s latest FAQ, paying particular interest to questions 31, 43 and 46. We also encourage you to consult with your CPA and attorney for additional guidance, if necessary.

That’s the letter of the law. Here is the spirit.

The intention of this program is to help small businesses maintain employment, make payroll and pay essential obligations in the immediate term while shut down for the pandemic. This is intended to meet urgent needs happening now, in April, May and June of 2020. Use of funds for purposes that do not meet this intention of the law risk losing forgiveness eligibility.

Questions we have already received concern delaying receipt of funds and/or waiting until the last minute (late June 2020) to rehire staff and restore pay levels. This does not meet the intent of the law and puts the 75/25 ratio at risk. If a business owner delays receipt of funds, it is difficult to classify the funding need as “urgent,” as the law intends. If they wait until late June to rehire staff, they are unlikely to meet the letter of the law in spending 75% of proceeds on payroll. In either case, they will be at serious risk of ineligibility for forgiveness.

This is how you request forgiveness.

You will provide a formal forgiveness request to Pinnacle. You can make that request eight weeks after you receive your funds, and no later than June 30. You will fill out a forgiveness form and return it to us, along with documentation to verify:

  • The number of full-time equivalent employees and their pay rates
  • Documentation of payroll expenditures covering the 8-week period following loan origination
  • Payment documentation on eligible mortgage, lease and utility obligations
  • Certification that documents are true and you used the forgiveness amount for eligible purposes

We will review your request and the supporting documents. Please understand that it is ultimately your responsibility and not ours to provide and attest to the documentation supporting your request for loan forgiveness. The law says you will be provided an answer within 60 days, but we don’t expect it to take that long. If approved, the SBA will forgive your loan, and we will provide proof of forgiveness for your records. If not approved, we will work with the SBA to determine the amount that can be forgiven, if any. Then we will work with you to determine a schedule for repayment according to the original terms of the loan:

  • 1% interest rate
  • 6 months of deferred payments, though interest will accrue over this period
  • 2-year maturity
  • No prepayment penalties or fees

For more information here is the link to the CARES Act and Interim Final Rule relating to PPP and forgiveness of your loan.

Here is a list of frequently asked questions with thorough answers from the SBA.