Borrowers, especially small businesses, who received Paycheck Protection Program (PPP) loans under the Coronavirus Aid, Relief, and Economic Security Act (CARES) may be ready to apply for forgiveness, but according to the American Institute of Certified Public Accountants (AICPA), final program guidance is not available from the SBA and U.S. Treasury Department.

Factors Affecting the Forgiveness Application Process

• Lenders are not ready to process forgiveness applications. Many are developing technology tools such as “forgiveness portals” or implementing other options for a more efficient process. But until the U.S. Small Business Administration (SBA) and the U.S. Treasury Department issue final guidance, those technology tools can’t be finalized. Bank of America, for example, is telling PPP loan holders it expects to begin opening its online loan forgiveness application process in early August.
• Organizations have 24 weeks to use their PPP money, which allows for 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 eight 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 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 needed.
• 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 expected. Borrowers can use a simplified process through the SBA Form 3508EZ if they meet at least one of these 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 January 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. CPAs expect SBA guidance to help determine how broadly this safe harbor can be used.

To prepare for the forgiveness application process, borrowers can:

• Take steps to document how the loan proceeds were used.
• Gather documentation needed to support non-payroll costs for expenses such as mortgage interest, rent or lease payments, and utilities, including account statements and other proof of payments.

Lenders may not request supporting documentation for all disbursements as part of the forgiveness application; however, increased scrutiny is guaranteed for loans of $2,000,000 or more.

To learn more, check out AICPA’s PPP resources. Contact your CPA for assistance with the PPP loan forgiveness process.

Questions?
Contact your Claremont team at 800.696.4543 or info@claremontcompanies.com.

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