Don't rush to apply for PPP forgiveness
We wanted to share a quick update on the Paycheck Protection Program (PPP). As we are sure you can appreciate, there is still uncertainty over some of the program details. Nevertheless, businesses are appropriately worried about meeting the loan forgiveness requirements. While you may be anxious to apply for forgiveness, here are five factors affecting the forgiveness application process:
Most lenders are not ready to process forgiveness applications. Many are developing technology tools such as “forgiveness portals” or will leverage other automation options for a more efficient process. Until the U.S. Small Business Administration (SBA) and the U.S. Treasury Department issue final guidance, those technology tools can’t be finalized. The timing on when that guidance will be available is uncertain.
Organizations have 24 weeks to use their PPP money, leaving them more time to take steps that will help them qualify for full loan forgiveness. Borrowers who received their loans before June 5, 2020, can choose either 8 weeks or 24 weeks for their covered period. That increased flexibility in the time to use PPP funds can be important in maximizing loan forgiveness.
Payroll costs are a significant component of PPP forgiveness. Many payroll providers are developing custom reports specifically to comply with PPP guidance. However, like lenders, they are waiting on final SBA and Treasury guidance so they can prepare the PPP-compliant reports borrowers will need.
Borrowers aren’t required to make any loan payments before they apply for forgiveness or until 10 months after their covered loan period ends. Since payments aren’t due yet, there is less urgency to apply for forgiveness.
Applying for forgiveness may be easier than you think. According to the SBA, borrowers can use a simplified process if they meet at least one of the following requirements:
They are self-employed individuals, independent contractors or sole proprietors who had no employees when they applied for their PPP loan and who didn’t include any employee salaries in calculating their average payroll amount in their application.
They didn’t reduce salaries or hourly wages for certain employees by more than 25% during the loan period and — except for specified exceptions — didn’t reduce the number of employees or the average paid hours for employees between Jan. 1, 2020, and the end of their covered loan period.
They didn’t reduce salaries or hourly wages for certain employees by more than 25% during the loan period and were unable to operate at the same business activity level during the loan period because of federal safety requirements or guidance related to the pandemic. We expect SBA guidance to help determine how broadly this safe harbor can be used.
While we are waiting for final program guidance, the best thing we can do is to document how the loan proceeds are being used. Lenders may not request supporting documentation for all disbursements as part of the forgiveness application; however, it is always a good idea to be prepared.
It can be difficult to be patient when your organization is affected by the ongoing uncertainty COVID-19 created. But that may be the best approach until the SBA and your lender establish a forgiveness application process.
We hope you found the above helpful. And again, we are available if you have questions, concerns or need assistance.