Hartford Business Journal

18 Hartford Business Journal • November 16, 2020 • www.HartfordBusiness.com Delayed PPP forgiveness process brings uncertainty, trepidation for some CT borrowers By Matt Pilon milpon@hartfordbusiness.com F ollowing several months of delays, the federal govern- ment has started to forgive some of the nearly 65,000 stimulus loans issued to Connecti- cut employers this past spring and summer to help them stay afloat during the COVID-19 pandemic. Banks and other institutions partici- pating in the Paycheck Protection Pro- gram, which issued $6.7 billion worth of Connecticut loans this year, in August began submitting forgiveness docu- mentation to the U.S. Small Business Administration on behalf of borrow- ers. The first loans were forgiven last month and money was sent to banks that issued the credits and provided the upfront cash to businesses. The SBA had accumulated a backlog of 96,000-plus forgiveness applications from around the coun- try before any money began to flow back to lenders, Politico reported. David Rotatori, CEO of Naugatuck- based Ion Bank, which wrote ap- proximately $175 million worth of PPP loans, said his bank has asked the SBA for forgiveness on several hundred loans so far. The agency has only acted on a small number of those, approv- ing them all, and sending Ion about $3 million in forgiveness payments. Rotatori said he always assumed the process would start slowly, due to the logistical challenges posed by unprecedented loan volume. "[The SBA] is getting its foot- hold and it's get- ting the process down, just like we are," said Rotatori, whose bank has several Greater Hartford branch- es. "They will be processing them, I think, quicker and quicker. It will continue to ramp up." While the loan forgiveness pro- cess begins for some companies, uncer- tainty remains for businesses that took PPP loans of $2 million or more. Spurred by media coverage this summer of public companies and other well-capitalized businesses that received PPP loans, the SBA has for months promised more scrutiny on larger borrowers, to determine if they actually needed the assistance. In Connecticut, about 371 borrowers received loans worth between $2 mil- lion and $10 million, SBA data shows. The SBA recently created ques- tionnaires that probe larger borrow- ers' 2020 performance and other financial details, leaving some won- dering how loan reviewers might use the information in making their forgiveness determinations. Test cases So far, it's unknown how many Connecticut loan forgiveness appli- cations have been approved by the SBA. A spokesperson for the agency said that data isn't yet available. In September, the federal Govern- ment Accountability Office reported that banks had sent 56,000 loan forgiveness decisions to the SBA as of Sept. 8, a tiny fraction of the 5.2 million PPP loans issued nationwide this year. That number has surely increased since then, as more banks have begun to accept the applications en masse from customers. Ion Bank has received forgiveness application materials from about 40% of its approximately 1,700 PPP borrowers. It has submitted roughly half of those applications to the SBA and received forgiveness decisions back on 5% of them. The SBA rules are complex, but in general, to qualify for full forgiveness borrowers need to have spent at least 60% of their PPP funds on payroll costs and the rest on other eligible expenses such as rent and utilities, all within a certain time frame. Bor- rowers that have not maintained their employee headcount according to the SBA's calculation method could receive partial loan forgiveness. PPP borrowers still have plenty of time to apply for forgiveness before they have to start making monthly payments to their bank or credit union. For example, the earliest PPP recipi- ents, which received their loans back in April, have until July or August of 2021. However, there's been conflicting advice for borrowers about whether they should apply for PPP forgiveness right away, or wait a while longer. Rotatori says it's best to get it over with. "You know what you know at this point, you might as well get it done and go into the new year with a fresh understanding," Rotatori said. "It's eas- ier to get it done now and not have to take on the risk of potential additional scrutiny, or changes to the tax law." However, some worry that the SBA's recently created "loan neces- sity" questionnaire indicates that the agency will apply a stricter filter in its forgiveness decisions related to loans of $2 million or more. Rotatori said Ion Bank had about 10 larger PPP loans and has submitted a few of them to the SBA for forgiveness, but has not yet received a decision. Some anxiety Area accountants say SBA's recently revealed loan necessity form — which asks $2 million-plus PPP borrowers for a 2020 and 2019 revenue compari- son as well as data on cash balances and dividend distributions to owners — is creating some anxiety, accord- ing to Drew Andrews, managing partner and CEO at Hartford-based accounting firm Whittlesey, who said the initial understanding about PPP earlier this year was that the loans were designed to be forgiven. "There's always been this attitude or implied reasoning that they don't want this money back," Andrews said. "Now this is kind of changing that thought process, in my mind. They're getting a little bit more strict." There are also potential tax implica- tions for borrowers whose loan is of- ficially forgiven by year's end, he said. Of course, there's no telling how things will play out at the SBA, An- drews added. The recent election, which saw Democrat Joe Biden win the presi- dency from Donald Trump and the Republican Party hold onto the Sen- ate, only adds additional wrinkles to predicting outcomes. Some have been hoping that Big and small borrowers The more than 3.5 million companies across the U.S. that received PPP loans of $50,000 or less have an easier path to forgiveness, as the SBA only requires them to fill out a two-page form. Borrowers of $2 million or more, however, recently learned that the SBA will scrutinize their revenue and capital levels before and during the COVID-19 pandemic. Loan size No. of loans Dollar total $50,000 or less 3.57 million $62.74 billion $2 million or more 28,982 $105.31 billion Source: U.S. Small Business Administration David Rotatori, CEO of Naugatuck- based Ion Bank, which has started applying for PPP loan forgiveness on behalf of borrowers. PHOTO | HBJ FILE

• Cover