Accountants Are Helping Clients Navigate PPP Challenges, But March 31 Deadline Looms

AICPA advocates for Congress to extend the program application period by at least 60 days.

One year ago, on March 10, during the early stages of the pandemic, the House Committee on Small Business held its first hearing in Washington on the impact of COVID-19 on small businesses.

Washington: Chairwoman Nydia Velazquez, D-N.Y., attends a House Small Business Committee hearing on … [+]

One of Congress’s earliest and most effective means of distributing relief was through the Paycheck Protection Program (PPP), created through the CARES Act to provide fully guaranteed, forgivable loans to meet payroll costs and other business expenses. Today, PPP is still providing urgently needed funding to businesses that might not otherwise survive.

In 2021 alone, the program has accepted applications for first and second draw loans and approved 2.1 million loans totaling $156.2 billion to help small businesses. The high level of demand for PPP loans is a testament to the program’s effectiveness but also to the lingering impact of the pandemic.


However, the program has encountered some issues in this round that have slowed the process. For instance, safeguards put in place by the SBA to prevent fraud have slowed application submissions for some borrowers, often by weeks. Additionally, the application process is somewhat complicated and if a borrower makes an error during some point in the process, it could hold up the progress of the funding for days, if not weeks.

Lisa Simpson, speaking on behalf of the American Institute of Certified Professional 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 hit.

Simpson, who has worked closely with thousands of CPAs who are assisting their small business and not-for-profit clients navigate the PPP since the program launched last April, applauded the efforts of Congress, the SBA, and the Treasury Department, which are working to resolve issues and improve the operational challenges of the historic program to ensure it reaches as many small companies and not-for-profit organizations as possible. Watch her testimony on C-SPAN.

Simpson told the Congressional leaders that smaller organizations often don’t have professional finance and accounting staff in-house. Thus, accounting professionals frequently perform vital functions including payroll processing, tax filings, paying bills, preparing financial statements, budgeting, and projecting cash flow.

“When the pandemic hit and many businesses were shuttered, small business owners turned to their CPAs for help figuring out how to pay employees, pay the rent, keep the lights on, and not lose all of their investment,” Simpson said.

“Throughout the pandemic the AICPA has had regular, ongoing dialogue with Treasury and the SBA to share insights from CPAs and their small business clients, to discuss ways to address PPP implementation challenges, and share ideas for driving business recovery and economic stability,” she told the panel.

Error Codes and Changes

When PPP reopened this year, the SBA included new processes designed to deter fraud, waste, and abuse in the program by instituting front-end compliance checks. While protecting taxpayer assets should indeed be a priority, some of the steps taken to reduce the risks of fraud inadvertently led to error messages that have slowed the application process for thousands of small businesses.

An estimated 20-25% of PPP loan applicants have been subjected to significant challenges in being accepted into the SBA’s E-Tran system. These challenges have occurred for both 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 a lender’s platform and the SBA’s platform.

Because this occurs in a digital workflow, many lenders have been unable to determine the cause of a decline status at this stage, and borrowers can be caught in limbo for weeks with no way to move beyond the first step in the application process.

If a borrower is able to make it through the digital transmission into the SBA, their application is run through databases that could result in up to 65 error codes. These error codes, many of which are ultimately found to be incorrect, can result in substantial delays (2-6 weeks) for resolution.

Error code examples include:

· An application can be flagged if a government database indicates that an owner has a criminal record that makes the borrower ineligible. However, some criminal offenses are not of a nature that makes the borrower ineligible. This can slow down the funding process for an eligible business borrower.

· An application can be flagged if a government database indicates the business is inactive according to Secretary of State filings or public records. This flag can be tripped if a borrower operates as a DBA or is not current with Secretary of State filings.

· An application can be flagged if a borrower uses a social security number on their sole proprietor Schedule C income tax filing instead of a Tax ID number. (This disproportionately impacts the smallest borrowers, many of whom are people of color).

False error codes tied to validation checks are delaying critical help for small businesses, many of which are barely treading water because of the coronavirus pandemic and the restrictions put in place to stem the spread of the disease.

The Biden Administration announced changes on Feb. 22, including providing a dedicated 14-day window intended to prioritize PPP loan application processing for businesses with fewer than 20 employees. The new regulations changed the loan amount calculation for many small business owners who operate as sole proprietors, independent contractors or self-employed individuals and file their business income on IRS Form 1040 Schedule C. The changes also expanded eligibility to borrowers who are behind on certain debts, including student loans.

We applaud the efforts of the Administration to help those small and under-served businesses most in need. However, the forms and guidance needed to implement some of the changes were not made available until March 3, 2021,” Simpson said. “Lenders who rely on an API to integrate into the SBA’s system need time — at least one week — to make changes, further delaying the date these smallest borrowers will be able to begin their journey through the SBA E-Tran system.”

“With an impending March 31, 2021 deadline for the PPP, there is very little time for small borrowers to determine their loan amount eligibility, file an application, and resolve any potential error codes,” she explained.

Simpson also noted that the loan amount calculation for business owners using IRS Form 1040 Schedule C was modified to allow for an increased PPP loan. This change is beneficial to the smallest business owners who are relying on PPP funds to continue their operations. However, because this change is not applied retroactively, hundreds of thousands of borrowers are not able to take advantage of this relief because they had filed using the previous loan amount formula.

“CPAs and small business owners have provided examples of relief that could have been 50-60% more if they were able to retroactively adjust the amount of PPP loans for this new guidance,” Simpson said.

Changes take time, and an extension of the PPP application deadline of 60 days or more after March 31 would provide an opportunity for the SBA to address its technical issues, provide updated guidance, and work with lenders and borrowers so that small businesses can navigate the application process and get PPP funding.

In 2007, I co-founded Biz2Credit, an online small business financing platform that uses technology to streamline the funding process. Previously, I worked for Deloitte