SBA PPP – Forgiveness Decisions Still Delayed as Final PPP Funds Exhausted; RRF Opens

By now, you’ve probably seen the news that the PPP is out of money.  Here are some quick thoughts on what that means for PPP borrowers and their lenders, investors and potential acquirors, as well as initial thoughts on the interplay with the RRF:


·         SBA has not made a formal announcement, but we have confirmed it with numerous people who have heard from SBA that all funds will be exhausted by applications already in the queue, other than about $8B left in the set aside for CDFIs, which serve underserved markets and borrowers.  The news caught many off guard, as SBA had been approving ~$7-10B of new loans per week.  As of Sunday nightSBA reportedhaving approved only $258B of 2021 PPP loans, leaving ~$34B of $292B appropriated for 2021 funding.  The average 2021 loan size is under $50,000.   Based on those numbers, SBA is dealing with a huge backlog of applications, which will likely take some time to clear.


·         While this news comes as a bitter disappointment to borrowers waiting for loans (especially those who had to make a difficult calculus of whether to apply for either PPP or RRF), it does at least provide some clarity and hope for existing PPP borrowers and the many private equity and strategic buyers who are or soon will be considering acquiring or investing in a PPP borrower:

o   We can now estimate a timeline on when the last borrowers will be through their forgiveness periods, which gives us some clarity on what future M&A timing might look like for PPP borrowers, which are challenging to acquire while still using PPP proceeds during their forgiveness periods.  If the last loans are approved and funded by May 31, then:

§  The minimum 8-week forgiveness period will end sometime around August 1, 2021.  This means the very last PPP borrowers can then apply for forgiveness, even if they have not used all of their PPP funds

§  The maximum 24-week forgiveness period for the very last PPP borrowers will expire around November 15, 2021.  Again, all such borrowers can apply for forgiveness.  Amounts used after that point generally won’t impact forgiveness.

§  As of this time every single PPP borrower will (finally) be eligible to apply for forgiveness, which also means that every single PPP borrower will be at least potentially eligible to comply with the SBA safe harbor for consummating a change of control transaction without SBA consent (e.g., having applied for forgiveness and putting PPP loan amount into escrow). 


o   It also frees up SBA resources to focus on PPP forgiveness applications.  SBA’s priority in 2021 has been to get new PPP loan applications processed, which has relegated SVOG, RRF and even PPP forgiveness to a bit of a lower priority. 

§  We still are not seeing any material progress on forgiveness applications for most PPP loans of $2M+,which are all subject to automatic “review” by SBA.  (IF YOU ARE SEEING PROGRESS ON THESE LOANS, PLEASE LET ME KNOW).  It has become clear that SBA is taking that review seriously, in particular asking questions of borrowers who have public company or private equity ownership.  Once SBA works through the backlog of new applications, it will be able to reallocate its bandwidth to PPP forgiveness … and the other programs.

§  Expect SBA to continue prioritizing getting money out the door, which means that forgiveness may still take a back seat to SVOG and RRF applications, with RRF comprising the vast majority of the required work.  The National Restaurant Association recently estimatedthat TTM restaurant sales were off by $280B, which is roughly 10x the $28B RRF appropriation, although:

·         Much of that decline is attributable to restaurants who are too big (>20 units) for RRF or are among the 110k estimated to have permanently closed; and

·         Some of the demand would be reduced by a portion of the $39B of prior PPP loans that has going to food, beverage and hospitality borrowers, as PPP amounts must be netted against RRF fundings.

§  It is too early to tell when RRF will run out of money (but it does appear to be a when and not an if) or whether Congress will allocate more funds to RRF, but if no further funds are added, SBA may be able to fully shift away from RRF applications and thus devote significantly more resources to PPP forgiveness applications sometime in June or July, hopefully unclogging the logjam of pending applications.


o   Despite the lack of progress on larger loans, we have seen smaller loans forgiven in as few as 3 days and they seem to be progressing through the forgiveness process fairly easily.  SBA reports that it has approved forgiveness on 2.9M PPP loans that were borrower in 2020 (almost 60% of the 5.2M 2020 PPP loans).

§  $242B has been forgiven and only $0.8B “not forgiven.”  We don’t know if that means SBA denied forgiveness of that $0.08B or if borrowers self reported that they were not eligible for forgiveness of that amount. 

·         But either way, this means that less than 0.3% of PPP borrowing amounts for which a forgiveness decision has been made have been determined to be ineligible for forgiveness. 

·         That makes some sense, as the smaller loans are moving through the system more quickly and under much more relaxed standards than apply to larger loans.  Thus, I expect that “not forgiven” percentage to rise, perhaps significantly.

§  183k loans, with a principal amount of $84.3B, are “under review by SBA.  That’s an average loan size of $460k, well below the $2M threshold for automatic review.  There were only about 29k loans of $2M+ in 2020, so that means that there are more than 150k loans under $2M currently pending SBA forgiveness review, although this number also may include smaller loans that will be forgiven quickly, but for which applications were submitted shortly before the report was tabulated.  (It would be helpful if SBA would define “under review” and/or clarify how many loans are currently undergoing a more formal “audit”-like process.)


·         The White House issued an RRF Fact Sheettoday announcing that:

o   182,600 “eligible businesses” have applied for funding (it’s not clear whether that means that an eligibility determination has been made on that number or whether it’s just a drafting quirk using the “eligible business” term from the regs; I’d bet on the latter).

o   97,600 (53%) came from businesses owned by women, veterans and/or economically disadvantaged individuals, whose applications will be prioritized in the first 21 days of the program.

o   61,700 (33%) came from businesses with under $500k of revenue ($5B is set aside for these restaurants).

o   SBA did NOT publish information on requested RRF funding amounts.

o   No word yet on approvals, but President Biden celebrated tacoTuesday Wednesday(?) at what he announced was the first restaurant to receive RRF funding.


·         Businesses that applied for RRF funding were required to withdraw any pending PPP application.  This may explain why SBA has now determined that PPP was out of money.

o   Before the PPP deadline had been extended from March 31 to May 31, SBA had previously said that it would only open the RRF after PPP was finished.  With the extension, that wasn’t feasible and SBA began accepting applications on May 3 … just one day before it informally announced that PPP was essentially out of money.

o   It seems likely that SBA was able to determine that there were not enough PPP funds left to cover pending PPP applications, even after giving effect to those that would be withdrawn by RRF applicants.  We understand that SBA is using applicant and owner EINs to cross check applications across the various stimulus programs, including PPP, SVOG and RRF. 


With any luck, this will be the last one of these that I need to send.  Despite my criticisms of the rule-making around the program, it’s important to remember that in 2019, SBA processed 63THOUSAND 7(a) loans.  In the 14 months leading up to May 31, 2021, they will have processed more than 11 MILLION PPP loans, with an aggregate principal amount of more than $800 billion, of which at least $480 billion(60%) will have been used to pay workers and support their families.  That’s tremendous accomplishment.

It’s been a while since I’ve sent one of these and although I certainly haven’t missed the late nights (on non-deal work), I have missed the great responses and interactions from and with so many of you.  Thanks for your support and encouragement, especially during those frantic days one year ago at this time, when the rules seemed to change every night.  (Ironically, the program was announced to run out of money on May (the) Fourth, exactly one year after the height of public company and PE-backed borrowers returning PPP loans (AKA:  These are not the loans you’re looking for) before the original return safe harbor deadline of May 8, 2021.) 

I hope you, your teams and your families are safe and healthy, and vaccinated, so that we can hopefully resume traveling and connecting in person soon. The first round is on me.