Advisors still have many concerns and questions about the loans made available under the Coronavirus Aid, Relief and Economic Security Act’s Paycheck Protection Program, according to executives at financial services consulting firm DeVoe & Co. and Live Oak Bank, as well as the several RIAs who asked them questions Tuesday during the webinar “Breaking Down New Guidance on PPP Loan Forgiveness.”

“There are a number of people who question why an RIA would accept the funds in the first place,” said Brad Grubb, DeVoe & Co. managing director.

Despite that, “a number of RIAs have taken advantage of the loan program, which promotes a key benefit of forgiveness if you follow” the guidelines provided by the U.S. Small Business Administration, he said. Advisors, however, are still getting up to speed on the guidelines, he added.

“When talking about loan forgiveness, first, I’d like to say that, there’s still a lot we don’t know,” according to Mike McGinley, executive vice president of small-business banking at Wilmington, North Carolina-based Live Oak Bank.

He pointed first to the interim final rule that the SBA recently released concerning loan forgiveness applications submitted under PPP. The published forgiveness application, meanwhile, is “going to drive a lot of this conversation,” he said.

On top of that, “there’s still some legislation out there that could change what the forgiveness application looks like,” he said, pointing to the Paycheck Protection Program Flexibility Act that House lawmakers passed May 27.

Steps Advisors Must Follow

Form 3508 is broken up into four components: the Loan Forgiveness Application Form, PPP Schedule A (required), PPP Schedule A Worksheet (required) and PPP Demographic Information Form (optional), McGinley noted.

Once the form is submitted, the lender has 60 days to issue a decision to SBA, and then once the SBA receives the decision from the bank, SBA has 90 days to remit the forgiveness amount and any accrued interest to the lender, he pointed out.

Payroll expenses make up 75% of the forgiveness calculation, but “that could change as a part of the proposed legislation” by the House, he added.

For advisors applying for a PPP loan, he recommended working with a CPA who “will help them work through the application, which is a little bit of a bear to get through.”

Asked about the Form 3508 filing deadline, he said: “There’s not necessarily a due date as to when that 3508 is filed, to my knowledge. Really, you have six months of deferred interest on the loan from the date that you receive the loan proceeds, and then you start paying principal and interest … over 18 months at 1%. You don’t necessarily need to have that 3508 filed with the bank by the time your eight-week covered period is up. You do have time after that because of the deferred P&I.”

However, that could change if the House’s law passes, he said, noting it includes an extension of the window a business has to use the funds from eight weeks to 24 weeks. It also would push back the deadline to rehire workers from June 30 to Dec. 31, while extending loan maturity from two years to five years, he said.

“So, with that extended flexibility, that would change the due date, so to speak,” for the form, he added.

When it comes to forgiveness related to self-employed Form 1099 recipients, there are also lingering questions, but “there’s more to come on that,” he said, noting the “interim rule didn’t really lay out what the calculation would be.”

He is “expecting that there will be further guidance on that” from SBA, he said. “But right now we’re telling folks to keep similar documentation that you were required to have for your loan amount,” he said.

To Disclose or Not to Disclose

One question that continues to concern many advisors is whether they need to disclose PPP loans they receive on Form ADV.

That is “a good question for your attorney,” McGinley said, adding: “We always recommend that you talk to counsel as to whether or not you have to disclose that on your Form ADV.”

Advisors that receive PPP loans do have to disclose them on their Form ADV filed with the Securities and Exchange Commission, David Barton, vice chairman, M&A leader at RIA Mercer Advisors, recently said during a recent TD Ameritrade Institutional webinar.

McGinley predicted that “a lot more” information on PPP loan forgiveness changes will be provided by SBA “in the coming weeks.”

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