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It’s been a while since we chatted about the Paycheck Protection Program (PPP). Here is an update with insights and analysis on the latest with PPP.

Forgiveness Processing

We have spoken to a bank we work with about the inside story on forgiveness. Most banks aren’t even accepting forgiveness applications for a variety of reasons:

  • The Small Business Administration (SBA) wasn’t ready to process applications until mid-August
  • There is a belief that additional regulation \ legislation will come out that will simplify the forgiveness process
  • There isn’t a rush with 10 months to apply for forgiveness after the coverage period which is automatically extended to 24-weeks for early loans.
  • As such, most loan forgiveness won’t need to be submitted until later in 2021

Loan Forgiveness FAQs

There are a number of questions related to loan forgiveness addressed in an FAQ document released on August 11, 2020. Here are some key points among many.

Scanned Documents are Allowed

Scanned documents and e-signatures are permitted with all loan forgiveness paperwork.

Payroll Cost Timing

Costs associated to a payroll that was incurred during the covered period but not paid until after or paid in advance of the covered period can be submitted for forgiveness.

Forgivable Payroll Costs

Gross payment to employees is considered forgivable.

“Payroll costs include all forms of cash compensation paid to employees, including tips, commissions, bonuses, and hazard pay.”

Group Healthcare Benefits

Employer portions of healthcare benefits are considered forgivable.

Loan Forgiveness Reduction Due to FTE or Pay Reduction

There is a whole lot outlined here, but here is a summary:

  • If people leave voluntarily, they won’t be counted
  • If you try and rehire laid off employees and they don’t accept, they won’t be counted
  • Seasonal employment is an option and will be based on May 1, 2019 to September 15, 2019
  • Reduction calculations are proportional so the impact isn’t big unless a lot of wages or employees were reduced

Loan Reviews and Appeals

There is an extensive guideline on loan review and appeals posting on August 11, 2020. It’s a real bore to read so here are the key points:

  • Any loan can be reviewed by the SBA for eligibility and validity
  • A loan can be found ineligible altogether, amount was ineligible, forgiveness is ineligible
  • There is a lengthy appeals process

Most businesses won’t have to deal with this unless your loan is reviewed and you’ve done something inappropriate or the calculations were done poorly. 

Owner Non-Payroll Costs

There was new guidance on owner’s non-payroll costs released on August 24, 2020. Here is a summary of key points

Owner Definition

Anyone who has 5 or more percent ownership in a C- or S-Corporation are considered owners.

Sub-Tenant and Home-Based Rent

Forgivable rent costs must all relate to the business for which the loan applies. With home-based costs, covered expenses are those deductible with 2019 tax filings or 2020 filings if the business is new.

Rent from Related Parties

In some businesses, owners may rent business property from themselves or an entity of which they are an owner. In this case, the rent can be forgiven as long as it is no more than the mortgage interest owed on that property and the lease and mortgage were entered before February 15, 2020.

Final Thoughts

We see a lot of business owners who have a lot of anxiety around their PPP loan as it is the first business loan. Remember, time is on your side. Payments aren’t due for 10 months after the forgiveness period. Forgiveness is likely if you follow the rules.