Aug 23, 2021
The SBA has published new guidance on PPP loan forgiveness on loans of $150,000 or less. A new portal has been established in which borrowers can request forgiveness directly w the agency instead of going through their lenders. The portal, launched in early August, is the latest attempt by the SBA to make the PPP loan forgiveness process easy and streamlined.
“The SBA’s new streamlined application portal will simplify forgiveness for millions of our smallest businesses — including many sole proprietors — who used funds from our Paycheck Protection Program loans to survive the pandemic,” said Administrator Isabel Casillas Guzman. “The vast majority of businesses waiting for forgiveness have loans under $150,000. These entrepreneurs are busy running their businesses and are challenged by an overly complicated forgiveness process.
The SBA has also created a PPP customer service team that will answer questions and directly assist businesses with their loan forgiveness applications. This team can be reached at 877-552-2692, Monday through Friday from 8 a.m. to 8 p.m. EST.
Click here to access the Paycheck Protection Program Direct Forgiveness Portal.
Mar 31, 2021
The PPP Extension Act of 2021 passed by Congress last Thursday has now been signed into law by President Biden. The PPP Extension Act of 2021 expands the Paycheck Protection Program (PPP) loan application due date two months from March 31, 2021, to May 31, 2021. With nearly 190,000 pending applications, the law provides small businesses and nonprofits 60 additional days to apply for the roughly $79 billion of funds remaining. This extension comes just two weeks after the American Rescue Plan (ARP) made several changes to the PPP, which we previously outlined here.
An additional provision of the Act allows the Small Business Administration (SBA) until June 30, 2021, to process lender applications.
Dec 22, 2020
Congress has been meeting seemingly around the clock in an effort to pass a bill before heading home for the holidays which, among other things, would provide a much-needed second round of Paycheck Protection Program (PPP) Stimulus. As of late Monday, December 21st, they were finally able to agree on negotiations and vote to approve this bill. President Trump is expected to sign this bill into law over the next few days.
What are the details?
Updates to the existing PPP program
First and foremost, the issue regarding the deductibility of expenses used for PPP1 loan forgiveness was finally resolved as Congress agreed, despite the push-back of the Treasury, to include legislation that allows for the deductibility of such expenses. This means that businesses who received a PPP1 loan (application deadline of August 8, 2020) that has been forgiven, or that they expect to be forgiven, can now deduct those related expenses from taxable income. This will result in a tax-free infusion of cash into many small businesses across America, which is in line with the original Congressional intent.
In addition to the deductibility of those expenses, additional items have been added to the list of qualified expenses for loan forgiveness. Among these are operating expenditures related to software or cloud computing that facilitates business operations, property damage costs (due to looting/vandalism that occurred during 2020 and were NOT covered by insurance), certain supplier costs, and covered worker protection expenses related to the adaptation of businesses per regulatory requirements imposed by the CDC, Health and Human Services, etc. These additional expenditures are only allowable for businesses that have not yet applied for forgiveness.
Congress also provided for modified covered periods in relation to PPP1 which gives businesses the option to select a covered period that falls anywhere BETWEEN 8 and 24 weeks after the loan origination date.
The bill repeals the requirement that EIDL (Economic Injury Disaster Loan) advances be deducted from the PPP forgiveness amount, and it allows the Employee Retention Credit to be claimed by PPP Loan recipients.
Finally, also retroactive to PPP1 is a much-desired streamlined application process for loans amounting to $150,000 or less. These applications require qualified businesses only to submit a one-page application that identifies the number of employees the borrower was able to retain as a result of receiving the PPP loan, the estimated amount of loan proceeds spent on payroll costs, and the total amount. Beyond that, borrowers need to simply attest to the fact that they complied with PPP requirements, and they are done. Gone is the need for hours and hours of painstaking calculations and document retrieval.
This wave of stimulus will appropriate roughly $900 billion for a host of provisions, but for the purposes of this post, we will focus on new funding for the Paycheck Protection Program (PPP2) specifically. To begin, the maximum loan amount allowed in this round is $2 million, down from $10 million with PPP1, and it will target two groups specifically:
1. A second draw for the hardest hit borrowers from PPP1. Items to consider for qualifications of this group are as follows:
- 300 or fewer employees; and
- 25% gross receipts decline in any quarter in 2020 compared with the same quarter in 2019
- EIDL and PPP proceeds are NOT included in gross receipts
- Based on calendar quarter (not any consecutive 3-month period)
- Tiered system where certain loans only require self-certification while others will need supporting documentation
- Full use of your PPP1 loan amount
- All loans will be subject to SBA review – congress is appropriating funds to the SBA to support manpower needed to conduct reviews of PPP loan applications so it can be expected that there will in fact be reviews by the SBA
2. First time PPP borrowers. Eligibility is as follows:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans
- Sole proprietors, independent contractors, and eligible self-employed individuals
- Accommodation and foodservice businesses that average less than 500 employees per physical location
- Non-profits, including churches
NEW in this round is 501(c )(6) and destination marketing organizations with 150 or fewer employees – think economic development, chambers of commerce, tourism, etc. – subject to certain lobbying thresholds
The structure of PPP2, including the loan calculation formula, eligible use of proceeds, and forgiveness feature are very similar to that of the updated PPP1. In general:
- The loan amount will be computed as 2.5 months of payroll. **Hotels and restaurants can get up to 3.5 times their average monthly payroll costs (subject to the $2 million maximum)**
- Eligible uses of PPP2 funds will include payroll, rent, utilities, and mortgage interest just as in PPP1 as well as the additional eligible expenses noted in the “Updates to PPP1” section above.
- PPP2 loan forgiveness will be tax-free and related expenses are deductible.
- PPP2 loans will follow the new simplified forgiveness process.
What should I do now?
It is expected that the SBA will begin accepting PPP2 loan applications sometime in January, so now is the time to begin considering the need for a second PPP loan and whether your business satisfies the requirements outlined above. With the PPP forgiveness expense deductibility question answered, you may need to revisit your tax projections. We also recommend that you consider taking advantage of the Employee Retention Credit if you are newly eligible.
Watch for additional WVC resources including blog posts and webinars with more details on PPP2 and other items included in this round of stimulus. Contact your WVC advisor to discuss the nuances of this new stimulus package and how it will impact your business.
Jul 20, 2020
Many businesses have received Paycheck Protection Program (PPP) loans and are now asking the question, “How do I account for the proceeds and potential forgiveness related to the PPP loan?”
The legal form of a PPP loan is debt, and regardless of the expectation of forgiveness, following the guidance under ASC 470, Debt will always be an appropriate option. However, the PPP loan does include a forgiveness component, resulting in many businesses wondering if the funds could be recorded as a grant. Currently, U.S. GAAP does not contain specific guidance on how business entities should account for government assistance. The AICPA has suggested that businesses can reference other guidance such as International Accounting Standard (IAS) 20 as an accounting framework for forgivable loans. A not-for-profit entity that received a government grant should apply ASC 958-605.
How does accounting work under both scenarios?
In accordance with ASC 470 Debt, upon receipt of the funds, a liability should be recognized for the full amount and will generally be classified as a long-term liability. Interest should be accrued at 1% beginning on the date the loan was received and continue over the term of the loan.
Any amount that is forgiven and the entity is legally released from its obligation, would be recognized as a gain in the income statement as an extinguishment of debt. This includes any interest which is forgiven.
Receipt of the loan proceeds and any repayment, the Company would present as financing activities. Any funds that are ultimately forgiven would be disclosed as a noncash finance activity. Interest paid should be presented as a cash outflow from operating activities.
The disclosures in the financial statements, at a minimum, should indicate the accounting treatment, terms of the agreement, and where the loan amounts are recorded in the financial statements, similar to other debt.
For those entities that are reasonably assured that they will comply with the eligibility and forgiveness criteria for the full loan, grant accounting could be an appropriate option. These entities should consider the guidance under IAS 20.
Upon receipt of the forgivable loan, a short-term liability for deferred income should be recognized. As the entity incurs the eligible expenses, the income should be recognized and the liability should be reduced.
In accordance with IAS 20, grant income can be presented as a credit in the income statement either as a reduction to the related expenses or it can be presented in other income.
Grant proceeds received, that are expected to be forgiven, should be presented as operating activities in the cash flows statement.
The disclosures in the financial statements should indicate the accounting policies applied, such as funds received, amounts included in both deferred income and recognized in income during the period, how deferred amounts will be recognized, and any unfulfilled conditions. The disclosure should also reference where the loan amounts are recorded in the financial statements.
If an entity does not anticipate meeting the PPP eligibility and loan forgiveness criteria, the loan should be accounted for as debt. In certain scenarios, in which the entity is reasonably assured of meeting the loan eligibility and forgiveness criteria for the full loan, it may be appropriate to account for the proceeds as a government grant. Whatever option the entity decides to follow, the financial statement disclosures should be straight-forward and inclusive.
The SBA has indicated it intends to issue additional guidance to help address questions from borrowers and lenders. All entities that received a PPP loan should continue to monitor for any developments which could impact their accounting for the loan. Should you have questions about your specific situation, please contact your William Vaughan Company advisor or reach out to our contributor, Juli Seiwert in our firm’s audit department.
Juli Seiwert, CPA