ST. PAUL — The Paycheck Protection Program, credited with stabilizing small businesses during the coronavirus pandemic, may offer loan forgiveness of up to 100% but could inadvertently stick borrowers with heftier-than-expected tax bills.

Faced with that possibility in what has already been a difficult business year for many, some borrowers in Minnesota and the U.S. are now waiting to ask for their debt to be canceled. They stand to save even more money should the terms of the program change.

It may be up to Congress to see to it that happens.

"Without Congressional action, businesses will face an unexpected tax bill when they file their taxes for 2020, as they continue to struggle with government mandated shutdowns or slowdowns. Many of those businesses will close and never re-open," according to a letter to Congress signed by several hundred trade groups. "This senseless tax policy stands both the letter and spirit of the PPP on its head."

With U.S. businesses having taken out $525 billion in PPP loans nationwide, it's taking some time for the U.S. Small Business Administration, which oversees the program, to process forgiveness applications. Approximately 595,000 applications have been submitted as of Nov. 22, the latest date for which program data were available, around 367,000 of which have been approved.

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State-level forgiveness data are not yet available, so it isn't clear how much of the $11.2 billion in PPP loans that Minnesota businesses took out has been forgiven.

At Sterling State Bank, which according to bank Vice President Tyler Coleman facilitated approximately 500 PPP loans for borrowers in southeast Minnesota, only 150 borrowers or so have applied for forgiveness. Just 59 have been approved by the SBA so far, he said.

"There’s a number of factors at play in terms of when people apply," Coleman said in an interview. "No. 1, we suggest that they speak to their accountant. And there’s a number of different accounting firms that are putting out lots of materials on how people should deal with the PPP loans."

That's primarily because businesses that have their loans forgiven won't be able to deduct expenses they used those loans to cover — such as payroll and rent — come tax day, according to recent Internal Revenue Service guidance. And because borrowers have up to 10 months from the final day of their loan period to apply for forgiveness, choosing to wait could at minimum keep a potentially heavier tax burden at bay for another year.

Waiting could prove to be an even better move if Congress does ultimately alter the terms of the PPP to make expenses covered by program loans deductible. But there's no guarantee that will happen, though it has been discussed in negotiations over a second major stimulus package.

For its part, the SBA is also advising PPP borrowers to talk about the forgiveness conundrum with their personal accountants or financial advisors.

"It's a very individualized decision," SBA Minnesota District Office Director Brian McDonald said in an interview.

Roughly one-third of North Shore Bank's 300 PPP borrowers in northern Minnesota have applied for forgiveness, meanwhile, according to Chief Lending Officer Brian Murphy. Whether the rest are waiting to apply because of tax considerations isn't quite clear.

"I have not heard that directly from our borrowers yet," he said.

Waiting might also benefit borrowers who took out both PPP loans and SBA Economic Injury Disaster Loans (EIDL) during the pandemic should other aspects of the programs change. EIDL loans were made partially in the form of an advance, the amount for which the SBA will not forgive in PPP debt, something Coleman said was not initially communicated to borrowers or lenders — and which could be a hassle for them both.

"It's not the worst thing in the world, but it's a burden on the banks now, too," he said. "Our expectation was that these loans were going to be completely forgiven, and now all the sudden we've got these tiny loans ... that we only make 1% on, which is not a very favorable rate."

Whether Congress will do away with the EIDL requirement for PPP borrowers remains an open question.

Contact Matthew Guerry at mguerry@forumcomm.com or 651-321-4314