If getting a PPP loan approved meant you had to move at warp speed, getting one forgiven may well feel like you're stuck in slow motion.

That's the case for Andrew Cao, a managing partner at Motoza, the Austin-based digital marketing agency he founded in 2011. Cao tapped into the Paycheck Protection Program -- the $521 billion forgivable loan program designed to bridge small businesses through the pandemic--in May, after some of his clients started pulling their business. He applied through a local lender, Horizon Bank, after failing to get in on the first tranche of PPP funding with his company's own bank, Bank of America.

"It was just a really bad experience, and unfortunately it had to happen this way," says Cao, who hasn't taken that experience lightly. "We have been transferring money from BofA to Horizon for the past couple of months," he adds.

Filing for loan forgiveness was a whole lot easier than applying for the loan, he notes, but he's still waiting on a decision about whether his company's $72,500 loan will be forgiven--nearly a month after filing. And he's not alone. 

As of September 24, the U.S. Small Business Administration had received just over 96,000 loan forgiveness applications, according to the testimony of SBA's chief of staff and associate administrator for capital access, William Manger. That is only about 2 percent of the total loans made. Manger, speaking before a House subcommittee meeting, further noted that while no application had been turned down so far, none had been fully approved either. The SBA hasn't provided a more recent update. 

Delays, Delays

While the SBA launched its online forgiveness portal on August 10, the same day Cao applied, the review process is time-consuming, taking as long as 90 days before the agency needs to remit anything to the lender. And the lender, filing the forgiveness application on behalf of the borrower, has 60 days before it needs to submit anything to the SBA. 

Borrowers themselves may apply for forgiveness at any point--even before the end of their PPP loan's covered period. However, principal and interest payments aren't due until 10 months after the conclusion of the covered period. Currently, only allowable expenses such as payroll costs and benefits expenses may be forgiven. And only funds spent within the 24-week covered period are eligible for forgiveness. Early PPP applicants might have just eight weeks to spend their PPP funds, as the passage of the Paycheck Protection Program Flexibility Act extended the covered period for new borrowers. Eligible nonpayroll costs such as mortgage interest and certain utilities cannot exceed 40 percent of the total forgiveness amount.

That's how the program is supposed to work. In practice, some lenders aren't even ready to receive PPP forgiveness applications, says LJ Suzuki, founder and CEO of CFOShare, a Denver-based finance and accounting outsourcing company for small businesses. He adds that lenders are likely taking their time getting set up to avoid being crushed by applications, as they were during the initial launch of the program. "They want to make sure all the IT bugs are worked out," he said. There is also hope that Congress will pass some kind of blanket forgiveness bill that will allow for the automatic forgiveness of loans under $150,000, but stimulus talks have stalled

To wit, as of October 5, Bank of America's online PPP forgiveness portal was still inoperable. At least one entrepreneur, Calloway Cook, who has tried to file for forgiveness via BofA's online PPP portal numerous times, says he's gotten an error message at each attempt. Cook is the president and founder of Illuminate Labs, a dietary supplements testing company in Northampton, Massachusetts, which just launched in March. "It's this thing hanging over my head," says Cook, referring to his $2,426 PPP loan. He expressed anxiety over getting socked with interest fees if he isn't able to get his loan forgiven before the 10-month moratorium on fees lapses. "I'm very on top of financial stuff ... I just want to get this process done with."

When asked about the status of Bank of America's forgiveness portal, a spokesman demurred. He did note that the bank is "communicating with clients and engaging them in the forgiveness process." He added that BofA has begun sending completed forgiveness applications to the SBA.

Suspended Animation

While you can understand caution on the part of the SBA and lenders--the PPP launch was indeed hurried and, as a result, chaotic--the problems arising from forgiveness delays are myriad.

Chiefly, it puts another level of potential financial strain on companies. To receive full forgiveness, businesses must maintain their headcount through the covered period and at the time of forgiveness. Should that process get delayed, it will put businesses in an untenable position, says Jake McDonald, a former banker and current director at CBIZ, a national accounting and advisory firm headquartered in Cleveland.

"We're talking with businesses about that," he adds. "They say, 'Look, I've depleted PPP funds; I need to make staffing decisions.'" Essentially, in a low-to-no revenue environment--and without any additional economic relief--businesses are having a hard time keeping people on staff. And soon, he says, they're going to need to let people go--with or without an answer on forgiveness.

The good news is that companies have until the end of the year to bring people back--presuming they can rehire former staffers or hire similarly qualified workers--and still qualify for forgiveness. But that still puts them in a bind, adds McDonald. "It creates a lot of extra administration tasks and associated costs."

It also creates potential tax headaches, says Graham Simmons, co-chair of the business law group at Norris McLaughlin, a regional law firm serving companies in New Jersey, New York, and Pennsylvania. For starters, he notes that interest fees--and how to treat them tax-wise--become something of a wildcard if forgiveness is delayed. While interest fees--which clock in at 1 percent on the unforgiven portion of PPP loans--and payments can be deferred for up to one year, interest charges start accruing on day one. So even if you expect your loan to be forgiven in full, you're still accumulating interest charges as you would on a regular loan. And after 10 months, says Simmons, some businesses might have to start making interest and principal payments on a loan that ultimately gets forgiven.

Simmons adds that it puts business owners into the odd territory of potentially claiming interest expense deductions on a loan that eventually gets forgiven. Interest fees that accrue on the forgiven portion of loans are expected to be remitted to lenders. He notes that, as yet, there's no guidance from the SBA or the IRS on how to treat the predicament--and that makes everything murky.

Even so, waiting to apply for forgiveness might not be such a bad idea, says Suzuki. "I'm intentionally advising my clients to not get their loan forgiven in 2020." The reasons have to do with PPP expense deductibility. While a business owner might normally expense the cost of employee wages, the IRS noted that if those funds are paid for by forgiven PPP loans, the expenses are no longer deductible. It would be viewed as double dipping. In other words, if you delay the forgiveness process until 2021, he figures, you can deduct the cost of the expenses that are paid for by would-be forgiven PPP loans this year, which thereby lowers your liability and should improve your cash flow in 2020, when you presumably need it most. "As a business owner it means you get an extra year's worth of having that cash in your business," he says.