To our Valued Clients,
August 4, 2020, the Small Business Administration (SBA), in consultation with the U.S. Treasury Department, issued new guidance through Frequently Asked Question (FAQs) to help those who received a PPP loan navigate maximum loan forgiveness.
The new PPP FAQs come as the deadline approaches for PPP loan forgiveness. Congress and the White House are negotiating a new stimulus package that could include simplifying the PPP loan forgiveness and creating a new round of PPP loans.
The decision to seek forgiveness now is debatable, so it may be worth delaying long enough to see what the next round of the stimulus package will bring.
Lawmakers can't agree on the best approach for a new economic relief package to assist Americans in the ongoing coronavirus pandemic. Below are some of the current items being debated.
PPP comparison in the Heroes Act and HEALS Act proposals
Heroes Act Proposal:
- Expands eligibility
- Eliminates 75% payroll requirement
- Extends Application period to December 31, 2020
HEALS Act Proposal:
- Injects another $190 billion in the PPP fund
- Expands eligibility and allows businesses to request a second loan.
- Eliminates the 75% payroll requirement
- Expands approved uses of funds for loan forgiveness.
- Simplifies the forgiveness application
Reasons Borrowers Shouldn't Rush their PPP forgiveness Applications
In a recently published article by the AICPA, there were five reasons why borrowers should not rush their PPP forgiveness applications.
- Most lenders are not ready to process forgiveness applications. Many are developing technology tools such as "forgiveness portals" or will leverage other automation options for a more efficient process. Until the U.S. Small Business Administration (SBA) and the U.S. Treasury Department issued final guidance, those technology tools can't be finalized. The timing on when that guidance will be available is uncertain. As one example, Bank of America is telling PPP loan holders it expects to begin opening its online loan forgiveness application process in early August and will email instructions to borrowers when it is ready.
- Organizations have 24 weeks to use their PPP money, leaving them more time to take steps that will help them qualify for full loan forgiveness. Borrowers who received their loans before June 5, 2020, can choose either 8 weeks or 24 weeks for their covered period. That increased flexibility in the time to use PPP funds can be important in maximizing loan forgiveness.
- Payroll costs are a significant component of PPP forgiveness. Many payroll providers are developing custom reports specifically to comply with PPP guidance. However, like lenders, they are waiting on final SBA and Treasury guidance so they can prepare the PPP-compliant reports borrowers will need.
- Borrowers aren’t required to make any loan payments before they apply for forgiveness or until ten months after their covered loan period ends. Since payments aren’t due yet, there is less urgency to apply for forgiveness.
- Applying for forgiveness may be easier than clients expect. Borrowers can use a simplified process through SBA Form 3508EZ if they meet at least one of these requirements:
- They are self-employed individuals, independent contractors, or sole proprietors who had no employees when they applied for their PPP loan and who didn’t include any employee salaries in calculating their average payroll amount in their application.
- They didn’t reduce salaries or hourly wages for certain employees by more than 25% during the loan period and — except for specified exceptions — didn’t reduce the number of employees or the average paid hours for employees between January 1, 2020, and the end of their covered loan period.
- They didn’t reduce salaries or hourly wages for certain employees by more than 25% during the loan period and were unable to operate at the same business activity level during the loan period because of federal safety requirements or guidance related to the pandemic. CPAs expect SBA guidance to help determine how broadly this safe harbor can be used.
Please call your trusted Machen McChesney advisor if you have any questions.
Best Regards,
Martin D. Williams, CPA,
Managing Partner
Machen McChesney, LLP
