The window for applying for a Paycheck Protection Program (PPP) expired on August 8, and the next phase of the program began—application for PPP loan forgiveness. A SaaS tool to simplify submission, the Small Business Administration (SBA)’s PPP Forgiveness Platform began accepting submissions on Aug. 10, 2020.
PPP loan recipients submit their PPP forgiveness application to their lenders for approval, who then submit the forgiveness to the SBA’s PPP Forgiveness Platform. Many of the major banks may be holding off on submitting PPP loan forgiveness applications to the SBA for a few weeks, however, in hopes that Congress will simplify the forgiveness process, particularly for the small organizations that received the loans.
Additional changes to the PPP were being discussed as part of the next round of stimulus legislation, but whether the two parties will reach an agreement remains unclear at this point. What is more concrete is the additional guidance the SBA released regarding PPP forgiveness in a new round off frequently asked questions (FAQs). Below recaps the PPP updates we know are in effect, including some long-sought guidance for payroll costs, and what additional program adjustments may be coming through Congressional action.
How the Updated FAQs Help PPP Loan Recipients
On August 4, the SBA released 23 FAQs about PPP loan forgiveness. Highlights of the FAQs include the following.
Use of Streamlined Forgiveness Applications
The FAQs clarify that independent contractors and sole proprietors that did not include salaries when determining monthly payroll automatically qualify to use the PPP Loan Forgiveness Application Form 3508EZ.
Interest and Loan Repayments
PPP loan recipients must submit their application to their lender within 10 months of the end of the Covered Period. So long as the SBA receives the application within the 10-month window, the borrower is not required to make any loan repayments until the SBA sets the amount of PPP loan forgiveness. Interest does accrue, however, between the date the funds are distributed and the SBA remittance of the forgiveness amount of the loan.
The FAQs identify how to determine the PPP forgiveness eligibility for owner compensation for corporations, partnerships, and self-employed individuals. It also clarifies how partial pay periods, group health benefits, and pay periods that fall outside of the Covered Period (8 or 24 weeks, depending on the option selected) affect this analysis. In the FAQs is also a point of clarity regarding who is considered an owner-employee: an individual is both an owner of a C corporation and an employee. The general rule is 2.5/12 of the 2019 compensation.
Forgiveness for Non-payroll Costs
One of the more nebulous parts of the initial PPP loan guidance relates to the forgiveness eligibility for non-payroll costs, including utilities. It has now been clarified that transportation costs refer to the transportation utility fees assess by some state and local governments and not other transportation costs incurred by businesses. The FAQs also examine the eligibility of nonpayroll costs incurred during the Covered Period and stipulates that the Alternative Payroll Covered Period (designed to align the Covered Period with a payroll cycle) does not apply to non-payroll costs.
Reductions in Loan Forgiveness
The FAQs provide additional information on how to calculate reductions in the forgiveness amount if a business reduces its salaries or hourly wages during the Covered Period. Loan recipients should also be mindful that they would need to keep records related to the written offers for the rehiring of workers as well as any furlough agreements. They are also required to notify state unemployment insurance offices of rejected rehire offers within 30 days of receipt of the rejection of the offer to rehire.
What Changes May be Horizon Based on Drafts of Stimulus Legislation
In the Senate Republicans’ plan for new stimulus legislation, the PPP loan application date would be extended, with additional changes to the program. Whether the final plan will retroactively extend the loan application deadline will be worth watching if your organization is considering but has yet to apply for a PPP loan.
The revised terms in the Republican stimulus legislation would have a more focused scope and possibly reduce the number of businesses that would qualify for the PPP. It also included provisions to streamline the process for the application, such as reducing the amount of paperwork for recipients that receive between $150,000 and $2 million in PPP loans. Additionally, businesses would be able to optimize the function of their loan amounts for expenditures outside of payroll costs.
If your organization has received PPP funding, it is very important to keep detailed records on how funds were allotted in order to prepare for tax and accounting implications as well as forgiveness calculations. For more information about the Paycheck Protection Program, please contact us.
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