Accountants Help Clients Overcome P3 Challenges, But March 31 Deadline Looms
The AICPA advocates that Congress extend the program nomination period by at least 60 days.
A year ago, on March 10, at the start of the pandemic, the House Committee on Small Business held its first hearing in Washington on the impact of COVID-19 on small businesses.
One of the oldest and most effective means of Congress of distributing relief has been the Paycheque Protection Program (PPP), created by the CARES Act to provide fully guaranteed forgivable loans to cover salary costs and other business expenses. Today, PPP still provides urgent financing to companies that otherwise might not survive.
In 2021 alone, the program accepted first and second draw loan applications and approved 2.1 million loans totaling $ 156.2 billion to help small businesses. The high level of demand for PPP loans testifies to the effectiveness of the program but also to the persistent impact of the pandemic.
However, the program encountered a few issues in this cycle which slowed down the process. For example, guarantees put in place by the SBA to prevent fraud have slowed the submission of claims for some borrowers, often by weeks. Additionally, the application process is somewhat complicated and if a borrower makes a mistake at some point in the process, it could delay the progress of the funding for days or even weeks.
Lisa Simpson, speaking on behalf of the American Institute of Certified Public Accountants (AICPA), testified before the House Committee on Small Business on March 10 and praised the legislative leadership that created the Paycheck Protection Program (PPP) and the efforts of the SBA and Treasury to provide much-needed relief when the pandemic has struck.
Simpson, who has worked closely with thousands of CPAs who help their small businesses and nonprofit clients navigate PPP since the program launched last April, applauded the efforts of Congress, the SBA and of the Treasury Department, who are working to troubleshoot and improve operational challenges for the historic program to ensure it reaches as many small businesses and nonprofits as possible. Watch his testimony on C-SPAN.
Simpson told congressional leaders that small organizations often do not have professional in-house finance and accounting staff. Thus, accounting professionals frequently perform vital functions including processing payroll, filing income tax returns, paying invoices, preparing financial statements, budgeting, and projecting cash flows.
“When the pandemic hit and many businesses closed their doors, small business owners turned to their CPAs for advice on how to pay employees, pay rent, keep the lights on and not lose their entire investment.” , said Simpson.
“Throughout the pandemic, the AICPA has had regular and ongoing dialogue with the Treasury and the SBA to share ideas from CPAs and their small business clients, to discuss ways to address the challenges of implementation. PPPs and share ideas to boost business recovery and economic stability, ”she said. told the panel.
Error codes and modifications
When PPP reopened this year the SBA included new processes designed to deter fraud, waste and abuse in the program by instituting upstream compliance checks. While protecting taxpayer assets should indeed be a priority, some of the steps taken to reduce the risk of fraud have inadvertently led to error messages that have slowed the application process for thousands of small businesses.
It is estimated that 20-25% of PPP loan applicants faced significant challenges in getting accepted into the SBA E-Tran system. These challenges have occurred for First Draw and Second Draw applications due to validation errors that are difficult to decipher and resolve because they occur in the Application Programming Interface (API) between an lender platform and the SBA platform.
Since this happens in a digital workflow, many lenders haven’t been able to determine the cause of a declined status at this point, and borrowers can be stuck in limbo for weeks without no way to go beyond the first step of the application process.
If a borrower manages to go through the digital transmission in the SBA, their request is executed through databases that can result in up to 65 error codes. These error codes, many of which ultimately prove to be incorrect, can cause substantial delays (2-6 weeks) in resolution.
Examples of error codes include:
· An application may be flagged if a government database indicates that a landlord has a criminal record that renders the borrower ineligible. However, some criminal offenses are not such as to render the borrower ineligible. This can slow down the financing process for a qualifying business borrower.
· A request may be flagged if a government database indicates that the business is inactive according to Secretary of State records or public records. This flag can be raised if a borrower is operating as a DBA or is not up to date with Secretary of State filings.
· A claim may be reported if a borrower uses a Social Security number on their Sole Proprietor’s Schedule C tax return instead of a tax ID number. (This has a disproportionate impact on smaller borrowers, many of whom are people of color).
False error codes linked to validation checks are delaying critical help for small businesses, many of which are barely standing still due to the coronavirus pandemic and restrictions put in place to stem the spread of the disease.
The Biden administration announced changes on February 22, including providing a dedicated 14-day window to prioritize processing PPP loan applications for companies with less than 20 employees. The new regulations have changed the calculation of the loan amount for many small business owners who operate as sole proprietors, independent contractors or self-employed and file their business income on IRS Form 1040, Schedule C. The changes have also expanded eligibility for borrowers who are behind on certain debts, including student loans.
We applaud the Authority’s efforts to help underserved small businesses that need it most. However, the forms and guidance needed to implement some of the changes were not available until March 3, 2021, ”said Simpson. “Lenders who rely on an API to integrate with the SBA system need time – at least a week – to make changes, further delaying when these smaller borrowers can begin their journey. through the SBA E-Tran system. “
“With the March 31, 2021 deadline looming for the PPP, small borrowers have very little time to determine their eligibility for their loan amount, file an application and resolve potential error codes,” she said. Explain.
Simpson also noted that the calculation of the loan amount for business owners using IRS Form 1040, Schedule C had been changed to allow for an increased PPP loan. This change benefits smaller businesses that rely on PPP funds to keep their businesses going. However, because this change is not applied retroactively, hundreds of thousands of borrowers cannot take advantage of this relief because they had deposited using the previous loan amount formula.
“CPAs and small business owners have provided examples of relief that could have been 50-60% greater if they could have retroactively adjusted the P3 loan amount for this new direction,” said Simpson.
Changes take time, and an extension of the PPP application deadline of 60 days or more beyond March 31 would give the SBA an opportunity to resolve technical issues, provide up-to-date advice, and work with lenders. and borrowers so that small businesses can navigate the application process and obtain P3 financing.