Even with questions still lingering, many “covered periods” are coming to a close for PPP loan recipients, and business owners are looking for guidance on the forgiveness process. What are the next steps?
The Journal of Accountancy said it best, “The PPP was born in a flash — the U.S. Small Business Administration and Treasury launched the program in only a week — and forged in a flurry of interim final rules and frequently asked questions. That guidance often raised more questions, and many small businesses relied on CPAs to help chart a safe path through the chaos.”
We have received many client questions regarding our recommendations on the next steps on the PPP loan process. By now, we hoped to have more answers regarding the deductibility of expenses and automatic forgiveness, and even potential additional funding options. However, similar to many issues in this crazy year, the only certainty is uncertainty.
Our Recommendation
Currently, our frequent recommendation to our clients is to hang tight until there is more guidance from the SBA, Congress, and other players in the PPP process.
As a reminder, at this time, there is no defined deadline for borrowers to submit their forgiveness application. After submitting your forgiveness application, lenders are required to issues a decision to the SBA within 60 days. Then, the SBA has 90 days to review the application and confirm the forgiveness amount. For borrowers who do not have their loan forgiven, payments will be required beginning 10 months after the end of the covered period.
Ultimately, borrowers will most likely not have a decision regarding forgiveness before the end of the year.
We recommend that borrowers focus on the following right now:
- Organize/Obtain Documentation (see final pages of the PDF links below)
- Loan Forgiveness Application Form EZ Instructions
- Loan Forgiveness Application Form Instructions
- Calculate forgiveness and draft application form
- Determine timing and unique application process with your lender
- Discuss and review your application and forgiveness issues with your CPA/advisors
Although the SBA began accepting forgiveness applications on August 10, some lenders are still not ready to accept applications. According to Politico, the SBA has received applications from fewer than 2 percent of all PPP borrowers as of Tuesday, September 28th.
For borrowers who are still eager to submit their application, we are here to help. Please contact us with any questions or for assistance with your submission.
Outstanding Questions
While we are encouraging patience on submitting forgiveness applications, we hope to receive further guidance on two important subject areas.
Blanket forgiveness
Since the majority of PPP loans were for $150,000 or less, there is proposed legislation that could streamline forgiveness for these loans. Complete blanket forgiveness on such loan amounts could save business owners time and money, but again, we are still waiting on congressional action.
Deductibility of expenses
While forgiven PPP loans are not considered taxable income, IRS Notice 2020-32 states that no tax deduction is allowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP-covered loan. Several organizations, including the AICPA have urged congress to allow for the deductibility of these expenses; however, there has been no congressional action yet.
Loans That Are Not Forgiven
A valuable benefit of PPP loans was the loan’s ability to be 100% forgiven should you meet certain criteria. However, some businesses may only receive partial forgiveness. This is not necessarily bad as the generous loan terms provide businesses with a low-cost source of capital. Once again, payment would not be required until 10 months after the end of the covered period.
FAQs on PPP Loan Forgiveness outlines the answers to other top questions borrowers currently have. If you have questions about whether you should move forward with your application, or if you would like assistance navigating the forgiveness process, please reach out to our Coronavirus Crisis Team who is happy to help.