SBA Releases Further Guidelines on PPP Loan Forgiveness
We’ve waited much of the summer and into fall for further guidance (and a stimulus plan) from the US Treasury and SBA. Add to the mix a great deal of conjecture and possible maybes from the pundits and press. Meanwhile, many businesses and employees are just trying to survive. Well my friends, we have finally heard from the SBA.
Here is the latest:
• No final regulations have been issued by Treasury.
• The SBA issued further guidelines on October 8 and a new form (3508S, attached here) for those who received PPP funds not exceeding $50,000. While the new form still requires borrowers to provide certain documentation, the new form is simplified and follows a “check the box” process for full forgiveness. Borrowers have the choice to use the form or wait for their lender to update (or even open) their online portals. The new rules also remove the need to show that the borrower did not reduce head count or salaries and, therefore, suffer a reduction in loan forgiveness. Previous regulations required that if an employer reduced salaries by over 25%, the amount over 25% would not be forgivable. Borrowers would also have to document that, if they did furlough employees, they tried in good faith to rehire them or couldn’t hire similarly qualified individuals, or also be subject to an unforgiven portion of their PPP funds. Remember that even if you qualify to file the 3508S you still have to attest that you used the funds for the intended purpose of the program.
• There is additional talk that funds up to at least $150,000 will be forgiven in a similar fashion. The Secretary of the Treasury has voiced his support on this and this new rule will possibly be included in the stimulus plan, which appears to be inching closer to a reality.
• Don’t rush to file for forgiveness. Most of the banks have not yet opened their portals to do so anyway. Like most of us they are also awaiting further direction from Congress. You have 10 months to apply for forgiveness after your covered loan period ends. We believe that more direction is coming…eventually.
• Take advantage of the 24-week coverage period. It should certainly help you in getting a larger portion totally forgiven. But do be prepared and don’t lose the opportunity to get a portion forgiven if it is in your best interests to do so. Know your dates and your numbers. If you need any guidance please contact us. This is imperative. For example if you received your PPP funds on May 1st your 24 week period expires on October 16th unless you can elect to use the alternative period that is available.
• There is also talk that the stimulus plan will include a revised ruling from the IRS stating that expenses paid with PPP dollars will remain tax deductible expenses. Currently they are not, which means, while the forgiven amounts of PPP that you have received are not taxable income, the expenses you have used to enable forgiveness are not tax deductible. It is important to realize that right now the PPP process could well generate phantom taxable income to you. Tax planning will become critical if further relief in this area is not forthcoming.
• There are also financial statement reporting considerations here. Click here for [link to attachment] recent responses to questions about the accounting for the PPP forgivable loan amount (TQA section 3200-18). This is the Financial Accounting Standards Board’s interpretation, which will apply for those of you who have to issue a formal financial statement in accordance with GAAP. As forgiveness is probably going to stretch into 2021 we believe this will be a relevant issue for December 31st year ends.
Well that’s it for now. if you need us we are available. I am sure there will be more to follow.
Partners and Staff of LHF.