As the Small Business Administration (SBA) gets ready to open its loan forgiveness portal on August 10, borrowers who received Paycheck Protection Program (PPP) loans under the Coronavirus Aid, Relief, and Economic Security (CARES) Act still have questions about the process.
Now, there are answers.
On August 4, the SBA, in consultation with the U.S. Treasury, released long-expected FAQs designed to clarify many PPP-related issues. These FAQs answer 23 frequently asked questions regarding the forgiveness of PPP loans.
Available in a 10-page document, the FAQs are divided into four sections tackling different aspects of the process and calculations PPP borrowers should use to determine how much of their loan is forgivable.
Key FAQ sections and highlights
General loan forgiveness
There are three FAQs in this section. One clarifies that sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to (and should) use the PPP Loan Forgiveness Application Form 3508EZ.
Loan forgiveness payroll costs
This section contains eight FAQs. Question No. 8 addresses how to determine the amount of owner compensation eligible for loan forgiveness. There are examples for owners of C and S corporations, self-employed Schedule C (or Schedule F) filers, general partners, and LLC owners, and establishes that an owner-employee is both an owners and employee of a C corporation (which was mentioned in the PPP loan forgiveness application but not previously defined.) Also addressed: partial pay periods, group health care benefits, and two questions related to payroll costs that were incurred or paid outside of the eight-week or 24-week covered periods.
Loan forgiveness nonpayroll costs
This section includes seven FAQs. Question 6 provides that payments of transportation utility fees assessed by state and local governments are eligible for loan forgiveness. Also addressed are two questions related to nonpayroll costs that were incurred or paid outside of the eight-week or 24-week covered periods and whether the Alternative Payroll Covered Period for payroll costs also applies to nonpayroll costs (it doesn’t).
Loan forgiveness reductions
This section includes five FAQs. Question 4 looks at how borrowers should calculate the reduction in their loan forgiveness amount arising from reductions in employee salary or hourly wage. It also includes three examples of the salary/hourly wage reduction are included.
Note that while the FAQs take on many outstanding questions, some areas, like how FTE reductions work if applying for forgiveness before the end of the covered period, are still up in the air.
PPP in review
Created as part of the $2 trillion CARES Act signed into law March 27, 2020 by President Donald Trump, the PPP authorized Treasury to use the SBA’s 7(a) small business lending program to fund forgivable loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.
PPP loans are available to small businesses in operation February 15, 2020 with 500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans.
Through July 31, the PPP has funded nearly 5.1 million forgivable loans totaling more than $521 billion to help small businesses and other eligible entities impacted by the recession sparked by the COVID-19 pandemic. More than $130 billion is still available in the PPP, which has an Aug. 8 deadline for applications to be approved by SBA. Congress is currently considering a follow-up to PPP that would provide more targeted assistance to small businesses.
Take your time to apply for PPP loan forgiveness
With updates to PPP still being considered, taking your time to gather the data and information you need to maximize loan forgiveness requirements is important.
- Be aware that lenders are still working on how to process applications. This includes developing technology tools such as “forgiveness portals” and other options.
- Additionally, since borrowers now have 24 weeks to use their PPP money, up from the original 8, they have 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 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.
Herbein is monitoring the latest on the PPP and small business aid programs. Our Coronavirus Resource Center provides the latest news and information on COVID-19. We encourage you to check our webinar listing regularly.
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