We are hearing from clients and business owners on a daily basis wanting to start the Paycheck Protection Program (PPP) loan forgiveness process. We, along with the American Institute of Certified Public Accountants (AICPA) and the Certified Public Accountants (CPA) community recommend holding off on the PPP loan forgiveness application just a little while longer.
The AICPA has provided 5 factors affecting the loan forgiveness application process:
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- 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’s 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 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.
- 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 10 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 Jan. 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.
What should you do while waiting on the final program guidance? Borrowers can prepare for the process by documenting how the loan proceeds are being (or were) used and watch for our updates.
We are also watching the newly introduced bipartisan bill in the Senate called “The Paycheck Protection Small Business Forgiveness Act” that calls for an automatic forgiveness on PPP loans under $150,000. For those borrowers there may not be any action required at all.
HM&M is following the developments and will continue to keep you informed as a trusted advisor during this time.
For more information check out HM&M’s COVID-19 Resources page.
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