Time for an update on PPP loan forgiveness rules and procedures. Unfortunately, there is still much unknown about the PPP loan forgiveness application (App) and approval process so we will try to differentiate between what is known and what is speculation/possible.
- There is a bill in Congress to allow streamlined forgiveness for PPP loans less than $150,000. Essentially the borrower would attest to using the loan proceeds according to law requirements, without submitting payroll and other supporting documentation. Although we believe Congress should and may pass this legislation, we are in an election year so politics may come into play.
- Some banks are currently accepting Apps, some are not. The process is: (1) Borrower submits App and supporting documents to the bank. (2) Bank reviews and must submit their forgiveness decision to SBA within 60 days of receiving the App. (3) SBA has 90 days to review, after which they inform the bank as to the amount of loan forgiven. (4) The bank informs the borrower of the SBA decision. If the entire loan is forgiven, there are no repayments from the borrower. If partial or full repayment is required, then payments start thereafter. Non-forgiven amounts accrue interest from the date of loan origination.
- All PPP loans default to a 24-week forgiveness period unless you received your loan prior to June 5th. If so, you may elect either an 8- or 24-week forgiveness period, whichever is more beneficial to you. If 8 weeks, then you have until April 30, 2021, to submit your App. If 24 weeks, you have until October 31, 2021, to submit your App. Apps can be submitted prior to these final deadlines.
- In order to qualify for full forgiveness, you must meet three requirements. You must pass ALL of these tests. Failing any one or combination thereof will require at least partial loan repayment.
- You cannot have cut any employee’s pay by more than 25% compared to how much you were paying them before you received your PPP loan.
- You must have the same or more full-time equivalent (FTE) employees post PPP loan as you had prior to receiving the loan.
- You must spend all the loan proceeds on payroll costs, rent, and utilities of your business. A minimum of 60% of loan proceeds must be spent on payroll costs. There are exceptions to these requirements, but they far too complicated to explain them all here so if you have questions, please call us.
- If you applied for and received an Economic Injury Disaster Loan (EIDL) Advance, the Advance amount received automatically reduces the amount of PPP loan forgiveness you qualify for. Thus, even if you meet all three requirements above, you are required to repay the loan amount equal to any EIDL Advance received.
- There are limits on how much owner compensation will qualify for forgiveness. In addition, there are limits on how much rent paid to related parties will qualify for forgiveness. These limitations are too complicated to cover here, so if you have any questions, please call us.
- The IRS ruled in April that the payroll, rent, and utilities paid with PPP loan proceeds cannot be deducted on your business tax return. We believe this interpretation of the law is incorrect as the law states that PPP loan forgiveness will not be considered taxable income to your business. The IRS taking away your deductions effectively makes the loan forgiveness taxable, which contradicts the law passed by Congress. However, Congress will have to tell the IRS to allow the deductions, so as it stands today, the deductions are not allowed. We encourage you to contact your congressional reps to make this law change.
See the attached PPP loan forgiveness applications. There are two, an EZ App and a Regular App. We can help determine which to use and also how to complete it. In light of the potential streamlined forgiveness for loans less than $150,000 and the time allowed to apply, we encourage many of you to be patient and delay the application for forgiveness. Please call us with any questions or to discuss your options.