Oct 12, 2020
The last week-and-a-half saw a flurry of new Paycheck Protection Program (PPP) guidance. Here is an update on what changes were made:
A Streamlined process for loans of $50,000 or less
While this change does not go as far as was originally proposed – providing automatic forgiveness for loans up to $150,000 – it will still help a significant number of Borrowers. A new forgiveness application, Form 3508S, has been released for loans of $50,000 or less.
While forgiveness is still not automatic for these Borrowers, the confusing and administratively burdensome portions have been removed. These Borrowers do not need to compute or reduce their forgiveness amount by 1.) reductions in compensation or 2.) full-time equivalent employees. The result? Borrowers of loans of $50,000 or less will not be penalized for any reductions in wages or employees.
For those who are keeping track, there are now three different application forms for forgiveness:
- Form 3508 – Standard form for those who do not meet criteria for one of the other forms (form instructions here)
- Form 3508EZ – Can be used for loans of any size where there is no reduction in wages or full-time equivalent employees (with certain exceptions) (Form instructions here)
- Form 3508S – For all loans $50,000 and under regardless of any reductions in wages or full-time equivalent employees (form instructions here)
PPP and sales of businesses
Guidance related to the requirements of Borrowers who are selling their business or business assets was also released. For most cases of sales of businesses or business assets, the Borrower will need to complete the following before the closing of the sale:
- Notify their PPP lender of the planned transaction and provide copies of the proposed agreements
- Submit their forgiveness application along with all required supporting documentation
- Deposit funds in the amount of outstanding PPP loan balance into an escrow account with their PPP lender
Also, in certain cases, the SBA must approve the proposed transaction before it is executed.
10-month deferral period
When the PPP was created, payments on the loan were deferred for six months. This deferral period was later extended to 10 months from the end of the Borrower’s covered period. The latest guidance clarifies that loan documents executed prior to the extension to the 10-month deferral are automatically modified to the 10-month deferral and do not need to be re-written and re-signed.
What changes might still be coming to the PPP?
We could still see a change with respect to the tax-deductibility of expenses related to forgiveness. Currently, such expenses are not tax-deductible, and therefore create a taxable event.
There continues to be support for a second PPP. Most recently, Federal Reserve Chairman Jerome Powell commented on the need for additional support for small businesses. A second round of stimulus would likely be much more targeted.
If you have questions about how these new changes may impact your business, please reach out to your WVC Advisor or our WVC PPP Loan Task Force leader, Kate Matz at firstname.lastname@example.org or 419.891.1040.