The hottest topic among business owners and administrators right now is what are the rules, guidance, and steps to maximize PPP loan forgiveness. This blog post is Part One of Checkright’s Three Part Series on PPP Loan Forgiveness. The desire to turn as much of the loan proceeds into a “grant” has become a borderline obsession among small business owners, and this post will provide some general things to keep in mind as you navigate this process.
- Your bank has the power to forgive your loan and it will make your final rules. With the loan application, we saw different processes: different documents requested, different time periods used, and different interpretations of allowed costs from one bank to another. It didn’t matter that guidance had been issued that seemed at odds with what a bank was asking for or doing. In the end, the bank was in charge. Similarly, even if you read or follow guidance you get here, or from another reputable source, what your bank says goes.
- Make sound employment decisions for your business and your employees. Bringing employees back to work from a layoff can end their ability to claim unemployment. Laying off employees for a second time as soon as your forgiveness period ends is a tough pill to swallow for them. Remember that even though the government may forgive the wages, you will still owe social security and medicare taxes as well as workers comp on those wages. Be careful about bringing back people to work just to get forgiveness for the loan-make sure your business can sustain their employment.
- Don’t freak out if you don’t get 100% forgiveness. If you get 90% or even 40% of your loan forgiven, your business has probably just received thousands of dollars in grant money to help weather the pandemic. Try to look at the cup half full rather than stewing over the money not forgiven. The unforgiven funds can become a cheap source of capital or you can hand the remaining funds back to the bank.
- The rules will continue to change. The SBA has put out multiple rounds of guidance already since the program began in late March, and they are probably not finished issuing new clarifications and rules. A well connected lobbyist told me today (May 20th) that the house will pass legislation next week to eliminate the 75/25% usage rule and extend the forgiveness window from 8 to 24 weeks, which would be major changes that would send everyone back to the drawing board. We will try to update this article, but this program is a work in progress, and it is important you continue to stay up to date on the latest information.
- The forgiveness calculation process will be hard. The first time I read the forgiveness application, my eyes started to glaze over and I am in the payroll industry. We will all learn new terms (Alternative Coverage Period, e.g.), make calculations that have never mattered before (did I have more FTE’s in lookback period one or lookback period two), and spend way more time than we want on this process. The SBA estimates that the forgiveness application will take 3 hours to complete, and for a larger company, it will take much longer than that. And there probably won’t be a magic set of reports from your payroll provider that will provide all the answers, as some of the data required was not captured in the format now being requested, during the lookback periods.
- Forgiveness is not happening for most companies until August, at the earliest. One of the requirements for forgiveness is to provide the 941 Quarterly tax return as a supporting document. This tax return is undergoing major changes by the IRS to account for the Paid Sick Leaves, Employee Retention Credits, and other payroll related changes that were part of the various stimulus laws passed. The quarter ends June 30th and programming on these changes won’t be complete until well into July. Don’t expect to be able to get this document from your payroll provider until close to August 1st. And as noted above, the whole forgiveness period may be extended longer than 8 weeks.
The most important things to do are to have a plan, have a budget, keep abreast of changes in guidance, and document everything. Then, when the appropriate time for putting together your forgiveness application is here, you will be prepared and ahead of the crowd.
Helpful Links for PPP Loan Forgiveness:
PPP Loan Forgiveness Application: https://www.sba.gov/sites/default/files/2020-05/3245-0407%20SBA%20Form%203508%20PPP%20Forgiveness%20Application.pdf
PPP Frequently Asked Questions: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf
PPP Final Interim Rule: https://home.treasury.gov/system/files/136/PPP-IFR-Loan-Forgiveness.pdf
Disclaimer: The subject matter in this article is subject to change and re-interpretation at any time by the SBA, Treasury, Executive Order, or Congress, and the author may or may not have a chance to update the material between when the changes were made and your reading. This article is meant to provide general guidance on PPP Loan Forgiveness, and the reader should seek specific advice for his or her situation from an attorney, CPA, or SBA representative. Neither the author nor Checkright make any representation or warranty as to the final accuracy or interpretation of the materials herein.
About the author: Arch Wallace is the President and founder of Checkright and has spent almost 20 years employed in the accounting and payroll industry. He can be reached at firstname.lastname@example.org.