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PPP Loan Forgiveness Guidelines

Don’t understand the terms of your PPP loan?

That’s okay because no one does. I mean this quite literally. When I glibly state that no one understands PPP loan forgiveness it is based on fact. On May 22, 2020 the Small Business Association (SBA) released it final rules on loan forgiveness for PPP loans. The PPP Loan Forgiveness Application was created (SBA form 3508). This form is a great resource because it gives borrowers a Summary of Costs Eligible for Forgiveness including eligible payroll and nonpayroll costs. Additionally, page 3 has a PPP Loan Forgiveness Calculation Form. You can view it here.

Benjamin McConnell from the Larimer Small Business Development Center (SBDC) was kind enough to walk me through the PPP Loan Forgiveness form on June 2, 2020 but his admonition was “Wait.” This was good advice because on June 3, 2020 the United States Senate approved the "Paycheck Protection Program Flexibility Act of 2020" (H.R. 7010). The new law was signed by the President and became effective on June 5, 2020 and it changed the game.

The SBA has not modified the loan forgiveness application to reflect the changes as of today’s date. Law makers, attorneys and accountants alike are still confused as to how this will play out. On June 8, 2020 the Journal of Accountancy reported that The SBA, in consultation with Treasury, will “promptly” issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing the amendments to the PPP made in the new law.

The new Act did not make minor alterations to your PPP loan provisions, it dropped an atom bomb on them. The best explanation I have found between the old and the new PPP loan guidelines is a chart created by two very intelligent attorneys at Ward and Smith, P.A.: Bill Latham and Tom Zamadics. You can find it here.

This is important because there are changes that would modify how you use your PPP funds this includes but is not limited to the following:

Use of PPP Loan Proceeds

Original CARES Act Provision: Not more than 25% of the forgiven amount of a loan could be attributable to non-payroll costs, and SBA's previous guidance provided that at least 75% of the proceeds of a PPP loan had to be used for covered payroll costs (although that 75% of loan proceeds requirement is not mentioned in SBA's published loan forgiveness application and Interim Final Rule).

New Provision: For new and existing loans, borrowers must use at least 60% of their PPP loan proceeds for covered payroll costs, and may use up to 40% of their loan proceeds for payment of covered non-payroll costs, including payment of interest (but not prepayments of interest or payments of principal) on covered mortgage obligations, payments of covered rent obligations, and covered utility payments.

Commencement of Payments in Absence of Forgiveness Application

Original CARES Act Provision: There was no comparable provision in the original CARES Act.

New Provision: For new and existing loans, if a borrower does not apply for loan forgiveness within ten months after the end of the borrower's covered period, payments of principal and interest on the loan will begin at the end of that 10-month period.

For borrowers with pre-June 5 loans who elect to continue to use their eight-week covered periods under the original CARES Act, payments of principal and interest on the loans will begin ten months after the last day of the eight-week covered periods if the borrowers have not applied for forgiveness during that period.

According to lawmakers there are additional changes on the horizon. Senator Ben Cardin, stated this week that he and a number of Democratic Senators plan to introduce the Prioritized Paycheck Protection Program (P4) Act, which authorizes new lending under the PPP to small businesses with 100 employees or fewer, including sole proprietorships and self-employed individuals. In order to be eligible under the proposal, businesses must have already expended their initial PPP loan, or be on pace to exhaust the funding, and must demonstrate a revenue loss of 50% or more due to the COVID-19 pandemic.

What Should I be Doing Right Now to Ensure I will Qualify for Loan Forgiveness?

According to Deloitte, a leading tax a consulting firm, you can think of the PPP loan forgiveness in terms of a government grant for accounting and tax purposes. Staff of the Office of the Chief Accountant of the SEC have indicated they would not object to an SEC registrant accounting for a PPP loan under FASB Accounting Standards Codification (ASC) 470, Debt, or as a government grant by analogy to International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, provided certain conditions are met. IAS 20 — Accounting for Government Grants and Disclosure of Government Assistance is a somewhat complicated tax regulation I do recommend consulting us or another attorney to get you started.

However, some very basic guidance to get you started is knowing what is eligible for loan forgiveness given what we know now. Right now, costs that are eligible for forgiveness are

· payroll costs to retain employees;

· business mortgage interest payments;

· business rent or lease payments;

· or business utility payments;

· all applicable reductions due to decreases in the number of full-time equivalent employees and salary/hourly wage reductions;

· And payroll costs for any owner-employee or self-employed individual/general partner, is capped at $15,385 per individual.

Most importantly, start accounting from the day of disbursement.

Please contact us today for a consultation and we will help you wade through this complicated legislation and establish a plan for you that will ensure you obtain the maximum amount of loan forgiveness due to you.

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