The vast majority of PPP borrowers are still waiting on banks or the SBA to sign off on their forgiveness applications. The timing has taken longer than people hoped because it is such a massive program. There’s a lot of paperwork and a lot of large and small borrowers.
Aside from the basic criteria needed to qualify for forgiveness, like using at least 60% of the loan for payroll, there may also be some subjectivity, said Art Van Buren, a shareholder with LBMC’s tax practice.
For instance, if a business can show that there was a reduction in the workforce due to a significant change in the business environment, they could still have their loan forgiven.
“But that is a very subjective term—what is significant? I argue that we don’t know the ‘true need’ (for these funds) yet. We don’t know what the long-term effects are,” said Van Buren, noting that there will be long-tail ramifications for people who lost their jobs and associated health insurance.
Managing the federal relief funding is one of several obstacles healthcare organizations face when trying to complete a transaction. Video conferencing is another limitation, which only goes so far when relatively unfamiliar parties come to the table. Workforces have had to adapt to operational upheavals caused by the pandemic.
Still, deals are getting done and just because a seller has a PPP loan, that is not deterring the process, said Lisa Nix, a shareholder and leader of LBMC’s transaction advisory services.
“However, more diligence is being around the loan forgiveness application and status,” she said.
In the meantime, M&A experts advised PPP recipients to bring their lenders into the fold as soon as they are contemplating a sale or merger, as well as document the process in the letter of intent. They need to submit forgiveness applications as soon as possible. Organizations should also weigh the tax implications, including how PPP loan forgiveness factors into their expense deductions.