Jul 30, 2020

Latest Developments on PPP and the Forgiveness Process

For most of you who received Paycheck Protection Program (PPP) loans under the CARES Act, the receipt of these funds provided a lifeline to your business during these challenging and stressful times. Nearly four months after the initial passage of the CARES Act, we are still in an environment of changing rules and a sense of urgency around the program. Unlike the previous urgency to apply for and receive funds, however, the focus now for many borrowers who have fully utilized their PPP loans has shifted towards the forgiveness application.

We would like to take a moment and update you on some of the latest developments of the PPP and the forgiveness process as well as provide some reasons why you may not want to rush your PPP loan forgiveness application.

Latest Developments

Additional changes to the PPP are once again being discussed as a new round of coronavirus aid is under consideration in Washington D.C. On Monday, Senate Republicans unveiled their plan for another wave of PPP funding to be included in the HEALS Act. This plan provides for a second wave of PPP loans to help the hardest hit businesses now that lawmakers realize the previous funding was not sufficient. There appears to be some bipartisan agreement on the broader points of the proposal with the additional aid aimed towards small businesses. The GOP plan would allow businesses with fewer than 300 employees, that have seen revenue declines of 50% or more, receive an additional loan. The Democratic plan is similar with one difference; it calls for eligible businesses to have 100 employees or less.

Additionally, lawmakers are wanting to simplify the loan forgiveness process for most borrowers with a focus on loans of less than $2 million. A summary of the bill, released by Senator Marco Rubio (R-FL), creates a simplified application process based on loan size as discussed below:

  • Loans less than $150,000 – Borrowers are not required to submit the documentation previously required to the lender. Instead, they must attest to a good faith effort to comply with the PPP requirements and retain relevant records for three years, allowing the SBA access to review and audit these loans to ensure against fraud.
  • Loans between $150,000 and $2 million – Borrowers are not required to submit the documentation previously required to the lender, but must complete the certification and retain relevant records and worksheets for three years. After lenders review the application for completeness, they must submit the application to the SBA who has the right to review and audit these loans for fraud.

Five Reasons Borrowers Shouldn’t Rush their PPP Forgiveness Applications

The AICPA recently published a list of five reasons borrowers shouldn’t rush their PPP forgiveness applications. While you may be anxious to begin this process, we wanted to share the list below for you to consider, in addition to the potential Congressional action outlined above.

  1. 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 issue final guidance, those technology tools can’t be finalized. The timing on when that guidance will be available is uncertain. Bank of America, as one example, 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.
  2. 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 eight 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.
  3. 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.
  4. Borrowers aren’t required to make any loan payments before they apply for forgiveness or until 10 months after their covered loan period ends. Since payments aren’t due yet, there is less urgency to apply for forgiveness.
  5. 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.