Getting your PPP Loan Forgiven!
Note: Please check back on this post periodically. We'll update it as we get new information.
It's worth the wait if your loan was $50K or less! The Treasury Department has released a streamlined, simpler application for organizations that received a loan of $50K or less.
Yep, this seems to be taking a while. And there may be a benefit to waiting.
You don't have to begin paying on the loan for 10 months after the last day of your covered period. The banks seem to be waiting on two things: the SBA to give them additional guidance on processing forgiveness applications, and for Congress to pass a blanket loan forgiveness package for loans under $2 Million. Hang in there!
Still haven't applied for the Paycheck Protection Program? Check our past blog post on that!
So, let's say you got your PPP funds on April 30. You have 2 months of payroll/benefits covered and some extra for rent and utilities. And you have to use those funds within 8 weeks, or by June 26. Not quite 2 months, is it? That's just one aspect of the program that makes forgiveness a little more difficult.
Congress has modified this program, as of 6/5/2020. See the bottom of this post for update!
How do we apply for forgiveness?
On May 15, the Small Business Administration (SBA) released the forgiveness application with some further guidance that answered some, but not all, of the questions that might come up as you submit your application. The AICPA immediately published their own criticism on the unhelpful aspects of the application and instructions. When it comes time to submit it, you'll still submit the application through your lender, so check with your loan officer to see how they want to receive it.
- Our friends at Haynsworth Sinkler Boyd have reviewed the application and given a summary of the process.
- Tony Nitti, CPA, provides a lengthy analysis and criticism in this Forbes article.
- National Council of Nonprofit's Analysis of SBA's PPP Loan Forgiveness Interim Final Rule released late Friday, May 22
How should we account for forgivable costs?
While segregating the PPP funds does not seem to be required, it's probably a good idea if you can. This way, when you incur and pay an eligible expense (ie. payroll or rent), you can calculate the eligible amount (see the prior blog post) and transfer that to your operating checking account. That way, at minimum, you've got bank statements to start your backup.
It's also a good idea, if your accounting software allows, to activate class accounting and create a class just for the PPP funds, and to allocate eligible expenses to that class. That way, you can pull a P&L statement just for that class to show, quite neatly, the loan money in, and the loan money going out.
Go ahead and start looking at the forgiveness application. It contains worksheets and calculations you'll need to make in order to apply. This will give you some insight as to how you should account.
- Nonprofit Quarterly recorded a webinar with Gina McDonald, CPA, who talks about the ins and outs of accounting for PPP. Here's the recording, advanced to the timestamp where she begins discussing the accounting.
PPP and the EIDL Advance:
Based on the Guidance, it looks like the SBA changed their minds on organizations having both PPP and EIDL Advance. If you have the EIDL Advance, you must subtract that amount from the forgiveable amount on the forgiveness application. They consider it "double dipping".
- Check the SBA's FAQs on PPP! Bookmark it because they update it frequently.
- There's an EZ Forgiveness application that allows you to skip most of the calculations if they don't apply to your org.
The President signed the Paycheck Protection Program Flexibility Act. (6/5/20)
Here's a summary of the new provisions:
- extend the PPP through 12/31/2020
- expand the covered period for loan use from eight weeks to 24 weeks
- expand maturity from 2 years to 5 years for new loans and permit borrower and lender to mutually agree to later maturity
- Forgiveness provisions
- Ease rehire requirement based on inability to rehire former or similarly qualified employees, or inability to return to operations levels
- Revise the 75%/25% rule to 60%/40%
- Defer payments of principal, interest, and fees until either the date the lender receives payment for forgiven amount of loan or 10 months after the end of the covered period
- Make PPP participants eligible for employer payroll tax deferral (CARES Act Sec. 2302)