PPP Forgiveness Simplified

Dec 15, 2020

The plethora of reporting requirements created by the PPP loan forgiveness process has left many pulling their hair out trying to assemble the necessary documentation. For some, this is an unfortunate reality. However, for those with smaller PPP loans or relatively straight-forward qualifying expenses, the extra stress may be avoidable. Before spending hours tearing apart your company records, review the considerations below to identify if you are eligible for a more streamlined application process.

#1. If you obtained a loan of $50,000 or less, you are eligible to use forgiveness application Form 3508S which requires fewer calculations and less documentation for borrowers. Borrowers using this form are exempt from reductions in loan forgiveness due to Full-Time Equivalent (FTE) employee reductions and/or salaries and wages. There is also no requirement to show calculations used to determine loan forgiveness amounts. Please use the following links to access the form and instructions.

*There are currently discussions in Congress to implement a similarly streamlined application process for loans up to $150,000. Until a decision on this is made, we generally advise holding off on submitting forgiveness applications if your loan amount falls between $50,000 and $150,000

#2. See if you qualify for the 3508EZ loan forgiveness application – A brief, high-level summary of qualifications is as follows:

  • the borrower is self-employed with no wages at the time of PPP application, OR
  • the borrow did not reduce wages more than 25% during the covered period AND did not reduce the number of employees or average paid hours between January 1, 2020, and end of the covered period, OR
  • the borrow did not reduce wages more than 25% during the covered period AND was unable to operate during the covered period at pre-COVID levels of business activity due to compliance with established governmental requirements.

Please see the following links for more in-depth detail on these qualifications as well as exceptions.

#3. When gathering supporting documentation for your loan forgiveness application, it may not be necessary to gather ALL of the applicable expense information. For example, for a loan amount of $200,000, compile enough expenses to cover that $200,000 with some cushion to account for any unforeseen disallowance, i.e., submit and document around $220,000-$240,000 of expenses although you may have actually spent $500,000 of eligible expenses during your covered period. Additionally, if loan forgiveness will be covered with entirely payroll expenses, something as simple as a report for the covered period from your third-party payroll provider should be sufficient from a documentation standpoint

#4. Lastly, please keep in mind that if your business qualifies for the §199A qualified business income (QBI) deduction and/or the tax credit for research and development (R&D) expenses, there are certain caveats to consider when using payroll expenses for qualified loan forgiveness. Absent relevant guidance, use of these types of expenses could result in a reduction of said expenses available to be allocated toward QBI and R&D.

Please consult your WVC adviser to further evaluate the most beneficial allocation and use of qualified expenses for PPP loan forgiveness. We also encourage you to check-out our PPP Roadmap here.

By: Jon Floering, CPA

 

Categories: COVID-19


Update on the State of the PPP

Oct 01, 2020

As the pace of changes to the Paycheck Protection Program (PPP) has relaxed, many are wondering about the current status and potential changes yet to come. We wanted to share with you some of the discussions occurring at the federal level about possible next steps. While there appears to be strong bipartisan support for these additional actions in concept, the specific details will likely change throughout the process.

What is the status of PPP and forgiveness?

  • $525 billion was lent to 5.2 million businesses.
  • Most lenders are now accepting forgiveness applications.
  • As of 9/24, the SBA had received 96k forgiveness applications but had not completed the processing of any of them.

What is the latest guidance related to PPP forgiveness?

On 8/24, additional guidance was released regarding the following:

  •  C or S Corporation owners with less than 5% ownership are not subject to the compensation caps
  • Expenses attributable to a tenant are not eligible for forgiveness.
  • Rent payments to a related party are capped at the amount of mortgage interest owed on the property.
  • Related party mortgage interest is not eligible for forgiveness.

What changes might still be coming to the PPP?

  • There continues to be bipartisan support in Congress for blanket forgiveness of “small” loans – typically discussed as $150,000. The exact terms and dollar amount still need to be negotiated.
  • There continues to be some bipartisan support for tax-deductibility of expenses related to forgiveness.
  • Congress has been slow to act, and it is likely we will not see movement on these items until after the election.

Will there be a second PPP?

Maybe. Again, this is a topic that Congress continues to discuss. Eligible businesses would likely be much more targeted in this round. We are likely to see a lower cap on the size of business (as measured by the number of employees) and it is likely that businesses will need to demonstrate they have been significantly negatively impacted.

What should I be doing now?

  • Continue to monitor our WVC COVID-19 Resource Center.
  • Calculate your loan forgiveness amount using a tool such as our forgiveness calculator.
  • Understand your lender’s process and timeline for forgiveness applications.
  • In most cases, it makes sense to sit tight and wait for the final changes to work their way through Congress. Your forgiveness application is due 10 months after the end of your Covered Period, so you have time.
  • Reach out to your WVC Advisor or our WVC PPP Loan Task Force leader, Kate Matz to discuss the above and plan for your specific situation.

Connect with the author:

Kate Matz, CPA, CEPA, CVGA, CGMA
Value Growth Practice Leader, William Vaughan Company
kate.matz@wvco.com | 419.891.1040

Categories: COVID-19, Other Resources


PPP Application Deadline Extended to August 8

Jul 06, 2020

On Saturday, July 4, President Trump signed legislation extending the application deadline for the Paycheck Protection Program (PPP) enacted in the weeks following the economic shutdown as a result of COVID-19.

The original deadline to apply was Tuesday, June 30, but with more than $130 billion still available in the fund, both houses of Congress approved the extension unanimously earlier in the week. With the President’s signature Saturday, businesses will now have until August 8 to apply for the assistance.

The PPP provides loans to small businesses to be used for certain payroll and non-payroll costs they may otherwise have difficulty funding due to the coronavirus pandemic. Such loans may be forgiven in part or in whole.

You can apply for your PPP loan through any of the 1,800 participating SBA approved 7(a) lenders or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution. For more information on the federally funded program, visit the SBA website or connect with your William Vaughan Company advisor for additional guidance and recommendations based on your specific situation.

Categories: COVID-19, Other Resources


President Trump Signs Much Needed PPP Flexibility Bill Into Law

Jun 05, 2020

Today, President Trump signed the Paycheck Protection Program Flexibility Act (the PPP Flexibility Act). This Act provides much-needed relief by relaxing the stringent guidelines for businesses to receive loan forgiveness under the Paycheck Protection Program.

Key provisions include:

  • The original 8-week period in which borrowers needed to spend the PPP Loan proceeds received can now be extended to 24 weeks. This extension provides additional time and opportunity for businesses to make the qualified expenditures necessary to have the loan proceeds forgiven. However, it is advisable if all loan proceeds have already been spent, businesses elect to apply for the original 8-week period (which is permissible) and expedite their forgiveness assuming the full-time equivalents (FTEs) have been restored.
  • Previous regulations required a minimum of 75% of the loan proceeds forgiven must be spent on payroll expenses, health insurance, and/or retirement plans. If not met, loan recipients would forfeit a portion of their forgiveness. Thankfully, that hurdle has been dramatically reduced to 60% which allows businesses to now allocate up to 40% of the potentially forgivable loan proceeds to rent, utilities, and interest on secured debt. However, it does appear upon reading this is a “cliff rule”. Meaning if you only spend 59% on payroll, potentially ZERO dollars will be forgiven.
  • Before H.R. 7010, PPP loan forgiveness rules indicated the amount forgiven would be reduced proportionately to the reduction of a recipient’s workforce during the original 8-week window if that same number of employees were not brought back by June 30th. According to updated legislation, this window has been modified to use the new 24-week window mentioned above with the amnesty rehire date being pushed back to December 31, 2020. For example, take an employer with 80 employees pre-pandemic who reduced its workforce to 40 employees during the 24 weeks. Assuming they spend the loan proceeds on qualified expenses during said 24 weeks, the employer will receive complete forgiveness so long as they’ve brought the workforce back to 80 by December 31st.
  • Whether due to government restrictions still in place, a lack of qualified individuals, or even individuals choosing not to return to work as a result of the current federal unemployment subsidy, an exception to the rehire rule has been enacted. To qualify for this exception, the borrower must establish they have been unable to restore previous FTE levels due to one or more of the aforementioned scenarios. Unfortunately, this exception is still largely a gray area and we are hopeful that additional guidance is imminent aucasinosonline.com.
  • The repayment period for loan proceeds still owed after reductions for forgiveness and EIDL grants (up to $10,000) has been extended from 2 years to 5 years with the interest rate remaining unchanged at 1%. Additionally, payments on the amounts still owed can be deferred up to the date on which the SBA makes the loan forgiveness determination.

Many loan recipients were hopeful for some clarification and additional guidance as it pertains to the deductibility of expenses for which the PPP loan proceeds were used. However, this still remains unanswered.

William Vaughan Company continues to keep a careful watch on additional legislation and is committed to sharing with you our insights and perspectives as regulations develop aucasinosonline.com/nz. To ensure you are staying up-to-date, we encourage you to sign-up for our WVC Insights emails here.

Categories: COVID-19, Other Resources


The Treasury Department and Small business Administration’s (SBA) Latest Guidance, Loan Forgiveness Application and the WVC Forgiveness Calculator

May 26, 2020

On May 15, the SBA released its Loan Forgiveness Application for the Paycheck Protection Program. The application outlines the computation for debt forgiveness.  While there are still many questions that need to be addressed, the guidance helped clarify some larger items:

  • The first day of the Covered Period for your PPP loan must be the same as the PPP Loan Disbursement Date and extends over the 56-day Covered Period. Borrowers with biweekly or more frequent payroll periods may elect to use the Alternative Payroll Covered Period that begins on the first day of their first pay period following the date when you receive the loan proceeds.
  • Payroll costs that have either been paid or incurred in the 56-day Covered Period are both eligible for forgiveness. If a cost is incurred and paid in the Covered Period, it will only be counted one time toward the forgiveness calculation.
  • Eligible Nonpayroll for forgiveness consist of:
    • covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020 (“business mortgage interest payments”);
    • covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (“business rent or lease payments”); and
    • covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020 (“business utility payments”).
  • Under the SBA’s guidance, the total amount of cash compensation eligible for forgiveness for each individual employee cannot exceed an annual salary of $100,000, as prorated for the Covered Period; that is, it cannot exceed $15,385.

All guidance on the Loan Forgiveness Application can be found here. While we are expecting more guidance from the SBA, we advise our clients to keep careful and detailed records and documentation throughout this process to maximize forgiveness.

WVC Calculator

William Vaughan Company is working diligently to update our Forgiveness Calculator to meet the latest SBA guidance. We will be sending you the latest version as soon as possible. Keep an eye out for our email. If you do not already receive our timely communications, please subscribe to WVC Insights here.

Categories: Other Resources