What's Happening with Your PPP Loan and the Loan Forgiveness Program?
In late May, the Small Business Administration, also known as the SBA released guidelines for the PPP (Paycheck Protection Program) Loan Forgiveness Application. If you were fortunate enough to receive a PPP Loan, that’s great. Now, it is time for you to see if you can benefit from the Loan Forgiveness segment of this plan.
Many small business owners were having a hard time with compliance because of the lockdown measures for COVID-19. Recipients of PPP funding should review the newer measures and ensure they meet the requirements. The SBA and Treasury Department created many measures to reduce compliance burdens and simplify the process for borrowers. These include the following:
Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan
Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30
Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined
Small business owners, as well as their accountants and financial advisors had been waiting since the end of April for guidance about how to get small-business loans forgiven (the main draw for the loans—which could be up to $10 million, under the Paycheck Protection Program). These new guidelines and the application will help small businesses seek forgiveness at the conclusion of the eight week covered period, which begins with the disbursement of their loans.
According to the rules of the CARES Act, the loans can be used over an eight-week period, and 75% of the loans must be used for payroll, while the remaining 25% can be used on things like mortgage interest and other expenses. Many CPAs are understandably concerned about the fact that instead of clear guidance, a form has been issued. Forms and the questions on them can inevitably lead to gray areas, which is part of the concern. The fact that it took a month to come out with the form itself is concerning enough. Small businesses owners are turning to their Accountants to help guide them through the process.
Some areas that are now clarified due to the application for forgiveness are:
How to handle getting the loan in the middle of a pay period
Borrowers can include payroll and eligible non-payroll expenses that were incurred (not only paid) during the eight-week period after receiving the loan, so long as they are paid on or before the following regular payroll date
There is a new exemption from the loan forgiveness reduction for borrowers if they have made "a good-faith, written offer to rehire workers that was declined"
The application also includes some clarity on how to calculate "full-time equivalents" for employees, which is key for the forgiveness side of the loans
There are still some areas that remain ambiguous for accountants and attorneys. These include:
How will benefits for health care, 401(k)s, and other related areas be covered in the forgiveness period if a business moved up those payments or disbursements to fall within the eight-week period
An even bigger pressing question is: When is the form itself due?
Some of the newest updates about information related to this application include:
Extending the window businesses have to use the funds from eight weeks to 24 weeks
Push back a June 30 deadline to rehire workers to December 31, 2020.
Provide more leeway on loan forgiveness for business owners who show they could not rehire workers or reopen due to safety standards
This is an ongoing process and as more information becomes available, we will share it with you!
