As guidance in this area is being released regularly, we recommend you read all of our blogs on this subject. All the blogs in the Paycheck Protection Program series are here: Updates #1, #2, #3, #4, #5, #6, #7,#8,#9,#10,#11,#12,#13, #14, #15, #16, #17, #18, #19
On January 8, 2021, the Small Business Administration (SBA) released a procedural notice to provide guidance on the recent changes to how the Economic Injury Disaster Loans (EIDL) Advances impact PPP loan forgiveness. Prior to the passage of the Consolidated Appropriations Act of 2021 (the Act), discussed in PPP Update #19, PPP borrowers were required to reduce any requested PPP loan forgiveness by any EIDL Advances received. After passage of the Act, EIDL Advances no longer reduce a borrower’s final forgiveness amount.
The procedural notice states that:
“…effective immediately, SBA will no longer deduct EIDL Advances from forgiveness payments remitted to PPP lenders. This change will be applied to SBA forgiveness payments with a status of “Payment Confirmed” dated December 29, 2020, or later.”
More importantly, for loans where the SBA remitted a forgiveness payment to a lender that was reduced by an EDIL advance, the notice states:
“…SBA will automatically remit a reconciliation payment to the PPP lender for the previously-deducted EIL Advance amount, plus interest through the remittance date.”
Once a PPP lender receives the reconciliation payment, they should notify the borrower.
If a borrower had an outstanding PPP principal balance on their PPP loan, the lender will update the amortization schedule on the loan based on the adjusted balance after accounting for the reconciliation payment. If the borrower already made payments on their PPP loan and the EIDL reconciliation payment is greater than the remaining balance, the lender will return the excess, plus any interest.
How long it will take for these reconciliation payments to occur is unknown. If you applied for PPP loan forgiveness and had your forgiveness amount reduced by the EIDL Advance, we recommend you contact your PPP lender and inquire as to when you can expect your reconciliation payment and/or what adjustments should be made to your outstanding PPP loan.
If you have questions about how to navigate the new provisions of the PPP program, please call on us. You can stay up to date on PPP guidance and tax issues relating to the coronavirus at our COVID-19 Tax Resource Center.